Transfer pricing analysis is one of the key elements of transfer pricing documentation. In practice, it allows taxpayers to assess whether transactions between related parties are conducted on arm’s length terms.

Although there are still a few months left until the start of the transfer pricing reporting season for 2025, now is a good time to revisit this topic, refresh your knowledge, and prepare for the upcoming compliance obligations. Let us remind you that the most important deadlines for Polish taxpayers are:

• preparation of local transfer pricing documentation with comparative analyses – by the end of the 10th month after the end of the tax year,
• submission of TPR information – by the end of the 11th month after the end of the tax year,
• preparation of group documentation (if applicable) – by the end of the 12th month after the end of the tax year.

In this article, we focus on the topic of transfer pricing analysis, presenting its basic types, the most important elements and the principles of updating.

Ex-ante and ex-post analysis

In practice, transfer pricing analysis can be prepared at various stages of transaction execution, depending on the goal that the taxpayer wants to achieve. The choice of the right approach is important both from a tax risk management perspective and for demonstrating compliance with the arm’s length principle. In this regard, two basic approaches are distinguished:

• Ex ante (in advance) – an analysis prepared before the start of the transaction. The goal is to determine the market price at the stage of planning the transaction.
• Ex post (retrospective) – the analysis is prepared after the transaction is completed or after the end of the financial year. It is used to verify whether the prices applied were in line with market conditions.

Although the regulations do not preclude the preparation of transfer pricing analyses after the end of the tax year or the execution of transactions, there is a clear preference for the ex ante approach in the interpretative practice of tax authorities. This is due to the assumption that the taxpayer should set the terms of the transaction in accordance with the arm’s length principle already at the stage of planning and concluding the transaction.

This position was confirmed in the tax ruling of 2 March 2018, ref. no. 0114-KDIP2-2.4010.15.2018.1.AZ:

“At the same time, the obligation to prepare tax documentation (including a comparability analysis) should not be treated only in the context of an additional documentation burden. Preparing such an analysis should allow the taxpayer to properly assess the correctness of the determination of transaction prices in the scope of transactions concluded between entities during the tax year and thus to ensure that the tax return is prepared accurately. Therefore, taxpayers should carry out the above analyses when determining the terms of the transaction, with a view to ensuring compliance of tax settlements with the arm’s length principle.”

Consequently, while ex-post analysis is acceptable, the ex-ante approach should be significantly safer from a tax risk management perspective.

Elements of transfer pricing analysis

In accordance with the Regulation of the Minister of Finance of 21 December 2018 on transfer pricing documentation for corporate income tax purposes, a proper transfer pricing analysis should include several key elements that ensure reliability and compliance with tax regulations.

The most important of them include:

• choice of the most appropriate transfer pricing method together with a brief justification as to why it was considered the most appropriate in your case.
• selection of the tested party and the rationale for this choice,
• a detailed description of the conducted study, including the method of selection of the comparative sample, the sources and type of comparative data, the choice of the financial ratio with its justification, the adjustments applied to increase comparability and the determination of the arm’s length range,
• a comparison of the transfer price or profitability achieved with the results of the analysis and an explanation of any deviations from the arm’s length range, if any.

Analysis Update

Transfer pricing analysis should normally be updated every three years. However, if there are significant changes in the economic environment affecting its results, it is reasonable to update it already in the year of the occurrence of these circumstances. Such factors include extraordinary events, such as conflicts or pandemics.

 In the face of current geopolitical tensions and their effects on the economy, taxpayers should regularly verify whether their transactions continue to comply with the arm’s length principle. Changing market conditions, rising operating costs or fluctuations in profitability may affect the results of analyses and previous assumptions.

The need to update the benchmarking analysis does not have to arise solely from market developments. Equally important may be changes within the company itself, which affect its financial results and position in relation to comparable entities.

For example, a significant increase or decrease in the value of an asset can affect the level of return on assets (ROA). As a result, a company that previously fell within the arm’s length range may no longer meet that criterion. In such situations, it may be reasonable to conduct a new analysis, including verification of the existing group of comparable entities and the possible selection of new observations.

Summary

A well-prepared and timely transfer pricing analysis not only demonstrates compliance with the arm’s length principle but also helps mitigate tax risk. Regular verification and careful monitoring of changes – both in the economic environment and in the company’s own results – help ensure compliance with the arm’s length principle and increase the company’s tax security.

If you are interested in preparing or updating a transfer pricing analysis, our team of experts will be happy to support you throughout the process – please feel free to contact us.