Business restructurings can have significant transfer pricing implications, particularly when they involve changes in functions, assets, or risks between related entities. This article outlines when a reorganization qualifies as restructuring and what documentation and reporting obligations may arise.

For the purposes of transfer pricing regulations, not every business reorganization qualifies as a restructuring. At the same time, meeting the criteria for recognizing a reorganization as a restructuring entails the need to undertake additional actions.

The concept of restructuring from a transfer pricing perspective

The concept of restructuring is defined in the Regulation of the Minister of Finance of 21 December 2018 on transfer pricing in the area of personal income tax (Journal of Laws of 2021, item 870; hereinafter: the Regulation).

According to the Regulation, restructuring is understood as a reorganization:

• involving a significant change in commercial or financial relations, including the termination of existing agreements or a material modification of their key terms, and
• involving the transfer between related entities of functions, assets, or categories of risk, if as a result of such transfer the taxpayer’s projected average annual earnings before interest and taxes (EBIT) in the three-year period following the transfer would change by at least 20% compared to the projected average annual EBIT in the same period had the transfer not taken place.

It should be emphasized that restructuring occurs only when the above conditions are met jointly.

Examples of restructuring

The recommendations of the Transfer Pricing Forum (TPF) indicate a catalogue of exemplary business reorganizations that may meet the definition of restructuring under the Regulation. These include, among others:

• closing down production / part of production in one related entity and starting the same production in another related entity;
• transferring / centralizing functions to a regional or central entity while simultaneously limiting the functions of local entities;
• transferring assets which are then made available again / leased / licensed back;
• transferring employees / teams between entities;
• sale or contribution in kind of an organized part of an enterprise or an entire enterprise.

It should be noted that the catalogue of examples provided by the TPF is not exhaustive.

Justification for restructuring remuneration

If a reorganization meets the definition of restructuring under the Regulation, the taxpayer must determine whether it is justified to establish remuneration for the restructuring.

The regulations do not specify the situations in which remuneration is due, nor do they define the method of its calculation.

According to the Regulation and the OECD Guidelines, the assessment of whether restructuring remuneration should be determined should be preceded by:

• identification of the actual transactions constituting the restructuring (including identification of risks related to the restructuring);
• analysis of the reasons for the restructuring, expected benefits, as well as other options available to the parties;
• determination of whether a transfer of profit potential has taken place.

The justification for the absence or the amount of restructuring remuneration should be described in the transfer pricing documentation (if the taxpayer is required to prepare it).

Local transfer pricing documentation and TPR

The obligation to prepare local transfer pricing documentation applies to restructurings where the value exceeds PLN 2 million.

Restructuring (even without remuneration) must be reported in the TPR, together with information on whether and in what form remuneration has been paid/received in this respect.

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