On 6 August 2020, the Polish Ministry of Finance has issued a guidance on whether a dividend payment among related entities falls within the scope of the definition of a “controlled transaction” for transfer pricing purposes.

The uncertainty was created by the introduction of a new definition of controlled transactions in transfer pricing regulations in Poland effective from 2019. The definition of controlled transactions for transfer pricing purposes is “ambiguous and covers a broad wide of economic events”.

Given the ambiguity, two questions were put forward: (i) Is a dividend payment to associated parties subject to documentation requirements if exceeding the documentation threshold? (ii) If the answer to the first question is yes, is the threshold PLN 10 million, i.e., the threshold for financial transactions?

According to the legal definition, controlled transactions are “actions of economic nature identified on the basis of the real behavior of the parties, including the allocation of income to a permanent establishment which conditions are made or imposed as a result of association.”

The Ministry of Finance made the interpretation of the concept of “actions of economic nature.” The Ministry of Finance differentiated the concept of economic activity with actions of an economic nature at the level of the organization and permanent establishment. In other words, economic activity is broader and includes activities of economic nature (with a profit-seeking purpose). With this clarification, dividend payments shouldn’t be considered a controlled transaction. Dividends are remuneration for capital and their allocation and payment are the results of economic activity, not activity of economic nature.