Changes of 17 June 2013 introduced to the Minister of Finance Decree on transfer pricing – part7: Business Restructurings and profit potential



The Polish Decree on transfer pricing does not mention the term “profit potential”, although this term is used in the OECD guidelines and in some countries, for a few years the tax on the exit of profit potential is applied.


That is because the OECD Guideline say that the transfer of “profit potential” is not a separate transaction that calls for a separate remuneration – such a remuneration could be due at the time of the transfer of a valuable asset or at the time the existing arrangements are terminated or substantially renegotiated.


The profit potential is similar to the profit considered by independent entities  in case of the sale of an on-going concern or termination / substantial renegotiation of a contract.


The Guidelines give an example of a distributor converted from a full - fledged distributor to a limited - risk distributor, without the transfer of any valuable assets. Historically, the distributor achieved a profit in the range from -2% to 6%, or from 5% to +10%, or 0% to 4%. After the restructuring, the risk is transferred to the foreign associated entity, while the distributor is given a guaranteed risk of 2%. The question is whether such restructuring is arm’s length?


The answer depends on the future expected profit and options realistically available in future for the distributor. If for instance,  it is excepted that new technology will be introduced and the distributor would not be able to keep pace with it, then it could be possible that such a restructuring is arm’s length.   



Prepared by Tax Advisory Company TCA Advisers Sp.z o.o. , Konstancin-Jeziorna, Warsaw


NOTE: This material is prepared for information purposes only – care was taken to make it as simple and clear as possible, so it is not complete nor precise enough to the basis for any action in practice – therefore, in case you need to resolve your particular situation, please seek professional tax advice.



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