On 6 February 2020, Polish Administrative Court (the “Court”) issued its decision on a transfer pricing case regarding Poland vs Shared Service Center.

A shared service center (SSC) in Poland both provided intra-group services to the group and in doing so also received and paid for services from other group companies.

The case concerned the payments for the services that the Shared Service Center in Poland received in providing support services to related entities. According to local anti-avoidance provisions intra-group service costs are non-deductible in Poland and thus tax authorities had considered that the payments for the received services were non-deductible.

The Company operates a shared services center providing support services. Therefore, the company bears a number of costs that are oriented towards the provision of the service for the person ordering the service. The revenue in connection with the support provided to related parties (domestic and foreign) is calculated based on the net transaction margin method or cost plus. This means that the company determines the cost base (operating costs and in the case of the net transaction margin method general administrative costs) allocated appropriately to each recipient of the service to define revenues from services provided to related entities, and it is the cost base that is key to determine the Company’s remuneration for a given service.

Service costs that are directly connected with provision of services that generate income, and are included in the base for remuneration of the services provided are deductible and thus not covered by the non-deduction provisions. The interpretation of the provision in the light of Article 15e paragraph 11 point 1, made by the authority in an unacceptable manner, inconsistent with the content of the norm contained therein, excludes service providers from the right to exclude from cost limitation referred to in Article 15e paragraph 1, despite meeting the conditions of this exclusion.

In addition, the service expenditures were not artificial or economically unjustified, which should be counteracted by limiting costs (and thus limiting the right to classify expenditure as tax-deductible costs). Therefore, it should be emphasized that functional (including teleological) interpretation of the limitation of being classified as tax-deductible costs (Article 15e (1), which has a clear connection with the exclusion of this limitation (Article 15e (11)), leads to the conclusion, that the purpose of the restriction was to counteract aggressive optimization, the lack of economic justification for the expenditure incurred.

The court examines the provision of Article 15e paragraph 11 point 1 of the Polish Corporate Income Tax Act (limiting costs on intra-group services) which provides for the need for a ‘functional relationship’ between the cost of services and the very provision of the service. Accordingly, the Court concludes that the restriction in the provision should not be applied to the assessee.