Changes of 17 June 2013 introduced to the Minister of Finance Decree on transfer pricing – part 4: business restructurings – allocation of risk

Below we quote section 4 par 23a of the Polish transfer pricing decree regarding business restructuring:

4. Tax controllers recognize that relevant risks are allocated correctly to a related party only when it can be demonstrated that the related party has the power to take decisions to manage this risk or has the financial capacity to bear the consequences of the risk should it materialise.

The OECD Guidelines on Transfer Pricing indicate that the determination of which party bears the risk starts from the examination of contractual terms, then whether the actual conduct of the related parties conforms to the contractual terms. The examination of the arm's length nature of the risk allocation, in the absence of comparables, it based on which party has greater control over the risk or financial capacity to assume the risk.

If the risk is allocated to the party which has less control over the risk, then tax administration may challenge the arm's length nature of the such a risk allocation.

Taxpayer should review their agreements, further conduct and documentation to see if the question of the allocation of risk is consistent.