Due to its specific characteristics and rapid growth, the IT sector often operates within related-party structures, where individual companies or organizational units provide each other with various services – from software development and maintenance, through technical support, to licensing, know-how transfer, or sharing intellectual property rights.
In this context, both from a business and tax perspective, the principles of transfer pricing gain significant importance. Their purpose is to ensure that transactions between related parties are carried out on arm’s length terms that is, terms that would be accepted by independent entities operating under comparable economic conditions.
These rules apply not only to entities operating solely in the Polish market but also to those functioning within international groups. The regulations are particularly relevant in the case of international groups, where there is an additional risk of shifting profits to jurisdictions with lower taxation or more favorable regulations; however, even in domestic transactions, the market nature of prices is subject to verification by tax authorities.
Group Structures and the Role of Related Entities
IT companies are increasingly operating within capital groups, where individual units perform strictly defined functions – from software development, through research and development (R&D), to sales, marketing, and customer service.
This model is justified from a business perspective – it enables effective cost management, risk diversification, and faster technological development. At the same time, however, it requires precise allocation of functions, assets, and risks, as well as proper determination of remuneration for provided services to ensure compliance with the arm’s length principle.
When a Polish company provides programming or R&D services to foreign entities, it is necessary to properly determine what portion of the added value is created in Poland and what portion abroad. Otherwise, tax authorities may challenge the allocation of profits within the group.
Specifics of the IT Sector and Valuation Challenges
Transfer pricing regulations are particularly significant in the IT sector because its operations are largely based on intangible assets and intra-group transactions, which are sometimes difficult to compare to market equivalents.
This especially concerns the valuation of intangible assets, such as:
- Databases,
- Source codes,
- Software copyrights,
- Patents and technological know-how,
- Artificial intelligence (AI) algorithms.
Documentation and Taxpayer Obligations
Entities in the IT sector are particularly vulnerable to transfer pricing audits, as tax authorities focus on financial flows between related entities, especially if they are cross-border. The key element in safeguarding the taxpayer is reliable transfer pricing documentation, which should include, among other things, a description of the functions, assets, and risks of each party to the transaction, as well as a benchmarking analysis confirming the arm’s length nature of the settlements. The aim of such analysis is to confirm that the price established between the parties (e.g., the amount of the license fee or monthly charges for programming services provided) is at a level that would have been set by unrelated parties.
Documentation Thresholds in Poland
Regardless of the obligation to apply arm’s length prices, tax regulations impose certain documentation obligations on entities conducting transactions with related parties. The obligation to prepare so-called local documentation (Local File) arises when the value of a controlled transaction exceeds:
- PLN 10 million – for goods or financial transactions,
- PLN 2 million – for service transactions,
- PLN 2 million – for other transactions, including those involving intangible assets and rights.
Additionally, capital groups with consolidated revenues exceeding PLN 200 million are required to prepare group documentation (Master File).
If the documentation threshold is exceeded, it may be necessary to prepare a benchmarking study or conformity analysis proving that the remuneration agreed by the parties corresponds to the market value.
Sanctions for Non-Compliance with Transfer Pricing Rules
Non-compliance with transfer pricing obligations can have serious financial and legal consequences for companies and their managers. If it is determined that the terms of transactions between related parties deviated from market terms, the tax authority has the right to assess additional income for the taxpayer, thereby imposing additional tax along with interest. It is also possible to impose an additional tax liability of up to 30% of the adjusted income.
Moreover, in the event of failure to prepare or submit the documentation (Local File or Master File) within the statutory deadline, those responsible, including management board members, may be held liable for penal-fiscal offences, which are subject to severe fines.
Good Practices in Transfer Pricing
- Preparing and regularly updating benchmarking studies and transfer pricing policies, especially when there are changes to the operating model.
- Setting prices at arm’s length at the earliest possible stage of the transaction.
- Including transfer pricing provisions in contracts and introducing possible mechanisms to adjust prices to market values.
- Clearly delineating functions and responsibilities between companies within the group—for example, designating the R&D center, the distribution company, or the IP owner.
- Early consultations with tax advisors when implementing new settlement models and licensing systems.
- Monitoring regulatory changes and OECD recommendations as well as domestic practices that may affect the valuation of services or assets.
Summary
Transfer pricing in the IT sector is a crucial and complex issue, especially for companies operating within capital groups, both in Poland and abroad. It requires a good understanding of how value is created in a technology company in practice for example, where code is written, where R&D activities are carried out, and where sales revenues are generated.
Properly establishing the rules for settlements between companies and appropriately documenting these transactions allows for avoiding disputes with tax authorities and ensures transparency in the group’s operations.
