The tax authorities issued an assessment of additional taxable income for “D. sp. z o.o.” resulting in additional corporate income tax liability for 2014 in the amount of PLN 2,494,583. The basis for the assessment was the authority’s findings that the company understated its taxable income for 2014 by a total of PLN 49,732,274.05, as a result of the inclusion of deductible expenses interest in the amount of PLN 39,244,375.62, under an intra-group share purchase loan agreements paid to W. S.a.r.l. (Luxembourg) expenses for intra-group services in the amount of USD 2,957,837 (amount of PLN 10,487,898.43) paid to W. Inc. (USA) “D. sp. z o.o.” filed a complaint with the Administrative Court (WSA) requesting annulment of the assessment. In a judgment of 15 September 2020 the Administrative Court dismissed the complaint. In the opinion of the WSA, it was legitimate to adjust the terms of the loan agreement for tax purposes in such a way as to lead to transactions that would correspond to market conditions, thus disregarding the arrangements, cf. the OECD TPG 1995 para. 1.65 and 1.66. Furthermore, according to the court the company did not present credible evidence as to the ‘shareholder’s expenses’ and the fact that significant costs were incurred for analogous services purchased from other entities indicates duplication of expenses. Consequently, it is impossible to verify whether the disputed management services were performed at all. Not satisfied with the decision “D. sp. z o.o.” filed an appeal with the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Supreme Administrative Court set aside the decision of the Administrative Court and the tax assessment and refered the case back to the tax authorities for a reexamination. According to the court, there was no legal basis in Poland in 2014 for the non-recognition or recharacterisation of controlled transactions. The Polish arm’s length principle only allowed the tax authorities to price controlled transactions. The provisions (Articles 119a § 1 and § 2 Op) allowing for the substitution of the effects of an artificial legal act, if the main or one of the main purposes of which was to achieve a tax advantage have been in force only since 15 July 2016. And the possibility provided for the tax authority to determine the taxpayer’s income or loss without taking into account the economically irrational transaction undertaken by related parties (Article 11c(4) of the CIT) came into existence even later, as of 1 January 2019. Excerpts “3.2 The tax authorities relied on section 11(1) of the Income Tax Act (as in force in 2014), under which the tax authorities could determine the taxpayer’s income and the tax due without taking into account the conditions established or imposed as a result of the relationship between the contracting entities. However, this income had to be determined by way of estimation, using the methods described in paragraphs 2 and 3 of Article 11 of the Income Tax Act. This is because these are not provisions creating abuse of rights or anti-avoidance clauses. They only allow a different determination of transaction (transfer) prices. The notion of ‘transaction price’ was defined in Article 3(10) of the Op, which, in the wording relevant to the tax period examined in the case, stated that it is the price of the subject of a transaction concluded between related parties. Thus, the essence of the legal institution stipulated in Article 11 of the CIT is not the omission of the legal effects of legal transactions made by the taxpayer or a different legal definition of those transactions, but the determination of their economic effect expressed in the transaction price, disregarding the impact of institutional links between the counterparties (…) It is therefore a legal institution with strictly defined characteristics and can only have the effects provided for in the provisions defining it (as the law stood in 2014). Meanwhile, the application of any provisions allowing the tax authorities to interfere in the legal relations freely formed by taxpayers must be strictly limited and restricted only to the premises defined in those provisions, as they are of a far-reaching interferential nature. Any broadening interpretation of them, as a result of which legal sanction could be obtained by the interference of public administration bodies going further than the grammatical meaning of the words and phrases used in the provisions establishing such powers, is inadmissible.” “3.3 The structure of the DIAS ruling corresponds to the hypothesis of the standard of Article 11c(4) of the 2019 CIT, which was not in force in 2014. Therefore, there was no adequate legal basis for its application with respect to 2014. This legal basis was not provided by Article 11 of the Corporate Income Tax Act in force at that time. This provision regulated the issue of so-called transfer prices, i.e. transaction prices applied between entities related by capital or personality. In this provision, the legislator emphasised the principle of applying the market price (also known as the arm’s length principle), requiring that prices in transactions between related parties be determined in such a way as if the companies were functioning as independent entities, operating on market terms and carrying out comparable transactions in similar market and factual circumstances. When the transaction under review deviates from those between independent parties, in comparable circumstances, then in the event of the occurrence of also other circumstances indicated in Article 11 of the updopdop, the tax authority may require an adjustment of profit. The legislative solutions adopted in Article 11 of the CIT Act (from 1 January 2019 in Article 11a et seq. of the CIT Act) refer to the recommendations contained in the OECD Guidelines on transfer pricing for multinational enterprises and tax administrations. The Guidelines were adopted by the OECD Committee on Fiscal Affairs on 27 June 1995 and approved for publication by the OECD Council on 13 July 1995 (they have been amended several times, including in 2010 and 2017). While the OECD Transfer Pricing Guidelines do not constitute a source of law in the territory ...