Many international groups calculate service fees during the year using budgeted or historical costs and adjust the amounts once the actual costs are known. This is a common approach where the final remuneration is determined under the cost plus method. The practical question is whether such a year-end true-up is only a standard cost adjustment or whether it should be treated as a transfer pricing adjustment subject to the specific conditions set out in Article 11e of the CIT Act.
This issue was considered by the Supreme Administrative Court in its judgment of 26 May 2026. The case concerned a company operating within an international network of media agencies. The company purchased substantive and administrative support services from a related party. The remuneration was calculated as the service provider’s actual costs plus a fixed 5% mark-up. During the year, however, the company paid a fixed fee based on budgeted costs. Once the actual costs were determined, the parties made an upward or downward adjustment.
The company argued that replacing the budgeted cost base with the actual costs did not constitute a transfer pricing adjustment. In its view, the adjustment did not change the agreed pricing method or the level of the service provider’s remuneration. The 5% mark-up remained unchanged and the adjustment only aligned the cost base with the actual costs incurred. On this basis, the company treated the adjustment under the general rules and recognised it on a current basis rather than in the year to which the services related.
The tax authority disagreed. It considered that the adjustment resulted from replacing the budgeted costs used to calculate the original fee with the actual costs. Therefore, the adjustment affected the remuneration in the controlled transaction and should be treated as a transfer pricing adjustment. Although the Provincial Administrative Court in Warsaw initially ruled in favour of the company, the Supreme Administrative Court overturned that judgment and dismissed the company’s complaint.
The Court’s approach
The Supreme Administrative Court explained that a transfer price is the financial result of the terms agreed between related parties. Under the cost plus method, the final remuneration depends on two elements: the cost base and the mark-up applied to that base. Both elements influence the amount payable. Consequently, the fact that the 5% mark-up remained unchanged did not mean that the transfer price remained unchanged. Once the cost base was recalculated, the final remuneration also changed.
According to the Court, Article 11e also applies where the original price was calculated using budgeted or historical costs and is later adjusted after the actual costs become known. This mechanism directly relates to the statutory condition referring to the determination of the actual costs or revenues that formed the basis for calculating the transfer price. In other words, a true-up may be a transfer pricing adjustment even if the pricing formula itself and the agreed mark-up do not change.
Why it matters
The judgment confirms that the name used by the parties is not decisive. Describing an adjustment as a “true-up”, “cost equalisation” or “cost base adjustment” does not determine its tax treatment. What matters is what the correcting invoice changes in practice. If it recalculates the remuneration in a controlled transaction because the actual costs or revenues are now known, there is a significant risk that Article 11e will apply. This may also be the case where the margin or mark-up remains exactly the same.
This classification is important because Article 11e is a special provision in relation to the general rules for correcting revenue and tax-deductible costs. An upward adjustment increasing the taxpayer’s income may be recognised if the first two conditions set out in Article 11e are met. A downward adjustment reducing taxable income is more restrictive and requires all statutory conditions to be satisfied. These include, among other things, confirmation that the related party has made a corresponding adjustment in the same amount.
The Court also indicated that a downward adjustment which does not meet the statutory requirements cannot simply be recognised under the general adjustment rules. In practice, this may mean that the taxpayer is unable to reduce its taxable income even though the parties have issued and settled a correcting invoice. The tax treatment should therefore be assessed before the adjustment is made, not only after the invoice has been issued.
Groups using budget-based settlements should review their year-end adjustment process and supporting documents. In particular, they should verify whether the original prices were determined on an arm’s length basis, identify the circumstances that led to the difference between the budgeted and actual results, and confirm that the counterparty will recognise the corresponding adjustment. A consistent description in the agreement, calculation, invoice and transfer pricing documentation will also help explain the nature of the adjustment.
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