Poland – I SA/Wr 175/25 – Wyrok WSA we Wrocławiu

Case Reference: I SA/Wr 175/25 Date of Judgment: 4 September 2025 (non-final) Court: Provincial Administrative Court in Wrocław

EXECUTIVE SUMMARY

This judgment concerns a transfer pricing matter decided by the Provincial Administrative Court in Wrocław on 4 September 2025, relating to corporate income tax. The Court partially annulled an individual tax interpretation issued by the Director of the National Tax Information on 22 January 2025, whilst dismissing the remainder of the complaint.

The case addresses the critical question of when transfer pricing adjustments should be recognised for tax purposes – specifically, whether certain post-year-end corrections to remuneration between related parties constitute transfer pricing adjustments under Article 11e of the Corporate Income Tax Act (CIT Act), or ordinary cost corrections under general principles.

PARTIES AND PROCEDURAL BACKGROUND

Parties

• Claimant: H Sp. z o.o. (the “Company” or “Claimant”)
• Defendant: Director of the National Tax Information (the “Tax Authority”)

Procedural History

On 22 November 2024, the Company submitted an application for an individual tax interpretation. On 22 January 2025, the Tax Authority issued an interpretation regarding corporate income tax. The Company challenged the interpretation before the Provincial Administrative Court, which heard the case on 21 August 2025.

FACTUAL BACKGROUND

The Parties and Their Relationship

The Company has its registered office in Poland, is subject to unlimited tax liability in Poland on all its income, and is registered as an active VAT taxpayer. The service provider (K.M., the “Contractor”) conducts business activity in Poland, has tax residence in Poland, is subject to unlimited tax liability, and is registered as an active VAT taxpayer. The Company and the Contractor are related parties within the meaning of Article 11a(1)(4) of the CIT Act.

The Four Agreements

The Company planned to enter into four agreements with the Contractor, under which the Company would be the service recipient and the Contractor would be the service provider.

Agreement I: Comprehensive Services

Agreement I covers comprehensive services including customer acquisition, business and strategic consulting, and provision of know-how. Remuneration is calculated separately for each month based on budgeted data using the formula: Contractor’s remuneration = (1 – Company’s profit margin) × Company’s operating revenues – Company’s operating costs. After each month, the parties update budgeted data based on actual operating costs. After the end of each tax year, by the end of the third month of the following year, the parties calculate the profit margin realised by the Company based on actual operating costs for that tax year. The parties aim to achieve a specific percentage profit margin at year-end (e.g., 5%). If the actual profit margin falls outside the agreed range (e.g., 4.5%-5.5%), the Contractor issues a correcting invoice to adjust the remuneration so that the Company’s actual profit margin equals the agreed percentage (e.g., 5%).

Agreement II: IT and Telecommunications Services

Agreement II covers IT services and provision of telecommunications systems. Remuneration is calculated separately for each month based on budgeted data using the transactional net margin method: TP = (DC + IC + GMC) × (1 + m), where TP is the transfer price, DC is direct costs, IC is indirect costs, GMC is general management costs, and m is the margin expressed as a percentage based on an aggregated operating margin benchmark. After the end of each tax year, by the end of the third month of the following year, the parties verify the Contractor’s actual direct and indirect costs. The Contractor issues a correcting invoice to the last invoice for that tax year, with the correction covering the entire tax year.

Agreement III: Database Licence

Agreement III covers a licence to use a database. Remuneration is calculated separately for each month based on the formula: remuneration = commission × net value of invoices issued by the Company in a given month to customers acquired through use of the database. The commission is set at a percentage rate based on a benchmarking analysis or compliance analysis. At least once a year, the parties verify the value of invoices issued by the Company to customers acquired through database use, taking into account correcting invoices.

Agreement IV: Application Licences

Agreement IV covers licences for applications. The Company first determines the percentage share of applications licensed from the Contractor in the total value of licensed applications used by the Company. The remuneration calculation base is then established: Calculation base = Operating revenues × Percentage share ÷ 100%. Remuneration is calculated as: Remuneration = Calculation base × Commission rate (15% from benchmarking analysis). After the end of each tax year, by the end of the third month of the following year, the parties verify the Company’s operating revenues. The Contractor issues a correcting invoice to the last invoice for that tax year, with the correction covering the entire tax year.

Three Types of Corrections

The Company’s application for interpretation concerns corrections to the Contractor’s remuneration made after year-end, relating to remuneration invoiced during the year. Remuneration is calculated based on accounting revenues or costs of either the Contractor or the Company. The total value of accounting revenues and costs used in calculating the Contractor’s remuneration may change due to various events affecting their total value, consequently changing the Contractor’s remuneration. Total accounting revenues and costs may increase or decrease, so corrections to the Contractor’s remuneration may also be increasing or decreasing. Changes to accounting revenues and costs recognised after year-end may result from various causes, such as provisions or impairment write-downs created or released after year-end, invoices or correcting invoices issued or received and posted after monthly invoices were issued by the Contractor, errors in recognising accounting revenues or costs, or deferred income written off to accounting revenues. Due to the timing of events affecting changes to accounting revenues and costs, and consequently corrections to the Contractor’s remuneration, three types of corrections would occur in practice.

Correction A

Correction A is provided for in Agreements I and II and is made after the end of a tax year, by the end of the third month of the following year. This correction results from the fact that after the tax year ends, all accounting revenues and costs for that tax year are finally known, making it possible to establish the final amount of remuneration due to the Contractor. This correction is documented by the Contractor with a correcting invoice issued to the last invoice relating to the tax year for which remuneration is being corrected. For example, for the tax year 1 January 2023 – 31 December 2023, Correction A would be made by 31 March 2024. From an accounting perspective, changes to accounting revenues and costs relating to the tax year 1 January 2023 – 31 December 2023 but posted in the period from 1 January 2024 to 31 March 2024 would still be included in the accounting result for tax year 2023, as they would occur before approval of the financial statements for tax year 2023.

Correction B

Correction B is made after the end of a tax year but before approval of the financial statements for that year. This correction results from the fact that after the tax year ends but before the financial statements are approved, events may occur affecting the level of accounting revenues and costs. Correction B may relate to Agreements I, II, III, and IV. This correction is documented by the Contractor with a correcting invoice issued to the last invoice relating to the tax year for which remuneration is being corrected. For example, for the tax year 1 January 2023 – 31 December 2023, Correction B would be made by the date of approval of the financial statements for tax year 2023. From an accounting perspective, changes to accounting revenues and costs relating to the tax year 1 January 2023 – 31 December 2023 but made in the period from 1 January 2024 to the date of approval of the financial statements for tax year 2023 would still be included in the accounting result for tax year 2023, as they would occur before approval of the financial statements for tax year 2023.

Correction C

Correction C is made after the end of a tax year and after approval of the financial statements for that year. This correction results from the fact that after the tax year ends and after the financial statements are approved, events may be discovered affecting the level of accounting revenues and costs for a given year. Correction C may relate to Agreements I, II, III, and IV. This correction is documented by the Contractor with a correcting invoice issued to the last invoice relating to the tax year for which remuneration is being corrected. For example, for the tax year 1 January 2023 – 31 December 2023, Correction C would be made after approval of the financial statements for tax year 2023. From an accounting perspective, material changes to accounting revenues and costs relating to the tax year 1 January 2023 – 31 December 2023 but made after approval of the financial statements for tax year 2023 would be recognised in the current financial statements in equity, as corrections to retained earnings from prior years.

The Company’s Position

The Company stated that for Agreements I, II, III, and IV, both the method of determining remuneration and the level of margins or commissions were established on market terms that would be established between unrelated parties. Since the basis for determining this remuneration is accounting revenues or costs of either the Contractor or the Company, the occurrence of events affecting the level of these revenues or costs necessitates correction of the remuneration due to the Contractor. Additionally, at the time of making all corrections, the Company would possess a statement from the Contractor or accounting evidence confirming that the Contractor had made a correction in the same amount as the Company.

The Company took the position that all corrections described in the future event would constitute transfer pricing adjustments within the meaning of Article 11e of the CIT Act. In the Company’s view, Correction A would involve the first situation described in Article 11e(2) – where actual costs or revenues forming the basis for calculating the transfer price become known. The Company believed Corrections B and C should be treated the same way. Both corrections result from changes to accounting revenues and costs from a given tax year, justifying a change in the remuneration due to the Contractor. The purpose of transfer pricing adjustments is to adapt the transaction price to market conditions. Corrections B and C aim to establish a transfer price that is consistent with market conditions in the context of changes made to accounting revenues and costs from prior years.

THE TAX AUTHORITY’S INTERPRETATION

The Tax Authority recognised the Company’s position as partially correct and partially incorrect. The Authority stated that transfer pricing adjustments can be made “in plus” or “in minus” – respectively increasing the financial result by decreasing costs, or decreasing the financial result by increasing costs. A transfer pricing adjustment is one in which the taxpayer independently adjusts, for tax purposes, the originally established transfer price to a level that in their view meets the arm’s length principle. Transfer pricing adjustments are made periodically, usually after the end of a given settlement period, when necessary financial data are already known. The occurrence of an adjustment results from circumstances arising during or after that period that could not have been known to the parties when planning the transaction, and which mean that it is necessary to adjust the level of the originally established transfer price to a level consistent with the arm’s length principle. The Tax Authority emphasised that a transfer pricing adjustment means correcting (amending, adjusting) the transfer price. Therefore, transfer pricing adjustments occur when they provide for correction (amendment, adjustment) of the transfer price relating to transactions carried out between related parties. The Authority concluded that the corrections made by the Company do not constitute transfer pricing adjustments within the meaning of Article 11e of the CIT Act. A transfer pricing adjustment aims to bring settlements between related parties to a level ensuring compliance with the arm’s length principle. Such an adjustment is made when the original settlements did not produce a market result. The essence of a transfer pricing adjustment is therefore to equalise the expected level of profitability disturbed as a result of difficult-to-predict circumstances. The scope of the concept of transfer pricing adjustments is limited to those cases where the correction of revenue or cost results from the taxpayer’s pursuit of bringing profitability to market level, not from other circumstances that may affect the transaction price. However, corrections to remuneration under Agreements I, II, III, and IV in variants A, B, and C result, as the Company indicates, from corrections to accounting revenues or costs after the end of the tax year, for example due to provisions or impairment write-downs created or released after year-end, invoices or correcting invoices issued or received and posted after monthly invoices were issued by the Contractor, errors in recognising accounting revenues or costs, or deferred income written off to accounting revenues.

The Tax Authority concluded that the causes indicated by the Company that result in corrections to accounting revenues and costs affecting the determination of remuneration between related parties are not the material circumstances referred to in the legislative justification and in the Ministry of Finance Explanations, and therefore cannot constitute grounds for a transfer pricing adjustment. The Authority stated that corrections to costs should be made on general principles arising from Article 15(4i)-(4j) of the CIT Act. Therefore, in the Company’s case, corrections should be made in the settlement period in which the correcting invoice was received or (in the absence of an invoice) another document confirming the reasons for the correction. Consequently, the Authority found the Company’s position regarding application of Article 11e of the CIT Act to be incorrect, whilst recognising the alternative position as correct.

THE COMPANY’S COMPLAINT

The Company challenged the interpretation in its entirety before the Provincial Administrative Court. The Company alleged incorrect interpretation and consequently improper assessment of the application of Article 15(1ab)(1) and (2) of the CIT Act in conjunction with Article 11e(2) of the CIT Act, consisting of finding that the described cost corrections are not transfer pricing adjustments. The Company argued that the situations presented in the description of the future event fall within the second condition specified in Article 11e(2) of the CIT Act. The pricing model is based on accounting revenues or costs of either the Contractor or the Company during the settlement period. The corrections to these accounting revenues and costs described in the future event should be treated as circumstances affecting the determination of actual accounting revenues and costs that occur after the end of the settlement period. Thus, the cost corrections in question are transfer pricing adjustments because – given the adopted transfer pricing model – their purpose is to establish the remuneration due to the Contractor at market level, i.e., taking into account final accounting revenues and costs from the given settlement period. In the Company’s view, the described cost corrections meet the second condition specified in Article 11e(2) of the CIT Act, as they relate to knowledge of actually incurred costs or obtained revenues forming the basis for calculating the transfer price, and consequently the described cost corrections are transfer pricing adjustments referred to in Article 15(1ab)(1) and (2) of the CIT Act.

THE COURT’S ANALYSIS AND REASONING

Legal Framework

The Court noted that pursuant to Article 15(1ab) of the CIT Act, when determining the amount of tax-deductible costs, the following are taken into account: (1) a transfer pricing adjustment decreasing tax-deductible costs, aimed at meeting the requirements referred to in Article 11c, through proper application of the methods referred to in Article 11d(1)-(3), meeting the conditions referred to in Article 11e(1) and (2); (2) a transfer pricing adjustment increasing tax-deductible costs, aimed at meeting the requirements referred to in Article 11c, through proper application of the methods referred to in Article 11d(1)-(3), meeting the conditions referred to in Article 11e(1)-(4). According to Article 11e of the CIT Act, a taxpayer may make a transfer pricing adjustment by changing the amount of revenues obtained or tax-deductible costs incurred, if the following conditions are jointly met: (1) in controlled transactions carried out by the taxpayer during the tax year, conditions were established that would be established by unrelated parties; (2) there was a change in material circumstances affecting the conditions established during the tax year, or the actually incurred costs or obtained revenues forming the basis for calculating the transfer price are known, and ensuring their compliance with conditions that would be established by unrelated parties requires making a transfer pricing adjustment; (3) at the time of making the adjustment, the taxpayer possesses a statement from the related party or accounting evidence confirming that this party made a transfer pricing adjustment in the same amount as the taxpayer; (4) there is a legal basis for exchange of tax information with the state in which the related party referred to in point 3 has its place of residence, registered office, or management.

The Court’s Key Findings

1. The Tax Authority Failed to Distinguish Between Two Separate Conditions

The Court observed that since the admissibility of transfer pricing adjustments must be examined using the conditions expressed in Article 11e of the CIT Act, it should be noted that Article 11e(2) of the CIT Act lists two conditions. The first condition specified in Article 11e(2) of the CIT Act, i.e., “a change in material circumstances affecting the conditions established during the tax year”, refers to cases where the occurrence of material circumstances results in a change in the conditions for carrying out the transaction. Material circumstances affecting conditions established during the tax year include, for example, extraordinary: changes in market prices of basic raw materials or materials, currency exchange rate fluctuations, changes in interest rates, fluctuations in demand or supply of a given product, caused by factors independent of the taxpayer and the related party. Extraordinary circumstances should be understood as difficult to predict, occurring outside the entity’s operating activities and unrelated to the general risk of conducting them. The second condition specified in Article 11e(2) of the CIT Act, i.e., “the taxpayer obtaining knowledge of the amount of actually incurred costs or obtained revenues forming the basis for calculating the transfer price”, refers to situations where the transfer pricing model is based on budgets (plans, cost estimates) in which, for example, information on historical costs was used to establish transfer prices. At the end of the settlement period, taxpayers in such a model recalculate transfer prices based on actual costs (or revenues) – known only after the end of the period. Such a transfer pricing settlement model may lead to differences at the end of the settlement period between the assumed and actually realised level of profitability. The occurrence of the first condition does not exclude the possibility of the second condition occurring (the logical conjunction “or” is used in Article 11e(2) of the CIT Act), but demonstrating one of them is sufficient.

2. The Tax Authority’s Erroneous Interpretation

The Court found that the interpretation shows that the Tax Authority did not distinguish between these two conditions, despite the Company emphasising in its application for interpretation that the condition in Article 11e(2) of the CIT Act refers to two different situations. The Tax Authority cited this position in the challenged interpretation. This distinction follows from the Ministry of Finance Explanations, which were issued pursuant to Article 14a(1)(2) of the Tax Ordinance Act, to which the Company referred in its application and to which the Tax Authority refers, but in a different scope. The lack of distinction between the two conditions is evidenced by the Tax Authority’s conclusion in the challenged interpretation that the causes indicated by the Company that result in corrections to accounting revenues and costs affecting the determination of remuneration between related parties are not the material circumstances referred to in the legislative justification and in the Ministry of Finance Explanations, and therefore cannot constitute grounds for a transfer pricing adjustment. This conclusion shows that the Tax Authority actually used one of the conditions arising from Article 11e(2) of the CIT Act in its interpretation, whilst omitting the second condition clearly emphasised by the Company in its submitted position. Therefore, it must be concluded that the Tax Authority made an erroneous interpretation of Article 11e(2) of the CIT Act. Interpretation per non est is inadmissible, i.e., one that leads to depriving certain provisions of normative significance. The fact of erroneous interpretation produced an effect in the form of the Tax Authority’s failure to consider the application of Article 15(1ab)(1) and (2) of the CIT Act in the case.

The Court’s Decision

For these reasons, the Court annulled the challenged interpretation in the part where the Tax Authority found the Company’s position to be incorrect, pursuant to Article 146(1) in conjunction with Article 145(1)(1)(a) of the Law on Proceedings Before Administrative Courts. Despite the Company’s request to annul the challenged interpretation in its entirety, the Court could not grant this request due to Article 57a of the Law on Proceedings Before Administrative Courts and due to the lack of any allegations formulated in the complaint regarding the part of the interpretation in which the Tax Authority found the Company’s position to be correct. Therefore, in this respect, the Court dismissed the complaint in part pursuant to Article 151 of the Law on Proceedings Before Administrative Courts.

TRANSFER PRICING ANALYSIS

This judgment is highly significant for transfer pricing practice in Poland as it addresses the fundamental question of when year-end adjustments constitute transfer pricing adjustments under Article 11e of the CIT Act.

The Core Transfer Pricing Issue

The regulation of Article 11e of the CIT Act, introduced from 1 January 2019 based on Article 2(9) of the amending Act of 23 October 2018, contained in Chapter 1a “Transfer Pricing”, gives the possibility of making transfer pricing adjustments in transactions between related parties. It should be emphasised that not every price correction is an adjustment within the meaning of this provision, and the possibility of making a transfer pricing adjustment is subject to a series of conditions that the taxpayer must meet for such an adjustment to be permissible at all. The legislator therefore perceives the possibility of making a transfer pricing adjustment as a taxpayer’s right. As stated in the justification to the draft amending Act, in business practice there are often situations where the level of the transfer price during the year does not undergo significant modifications, resulting in deviations between the realised level of profitability of the related party and the market level of profitability, resulting for example from benchmarking analysis. Such a situation may occur, for example, in the relationship between a manufacturer with a limited scope of functions, risks, and assets and a central entity managing the supply chain (so-called entrepreneur) – which entity will not always be a party to direct transactions with the manufacturer. After the end of the year, it may turn out that due to the occurrence of changes in circumstances material from the transfer pricing perspective, the sum of remuneration received by the manufacturer during the year may not be sufficient to achieve a market level of profitability and, as a result, it is necessary to make a profitability adjustment to obtain a financial result consistent with market level. Circumstances material from the transfer pricing perspective that could not be foreseen when planning the level of transfer prices for a given year may include, for example, material changes in market prices of basic raw materials or materials, currency exchange rate fluctuations, changes in interest rates, or significant fluctuations in demand or supply of a given product, caused by factors independent of the taxpayer and the related party. Differences between the assumed level of profitability and actual profitability may also result from a model in which information on historical costs was used to establish transfer prices during the year, and the taxpayer did not have the possibility during the year to make adjustments to actual costs – whilst material circumstances that may affect the level of the transfer price are changing. Then, at the end of the year, a difference may arise resulting from comparing historical and actual costs.

Two Distinct Grounds for Transfer Pricing Adjustments

The Court’s analysis makes clear that Article 11e(2) of the CIT Act provides two alternative grounds for making transfer pricing adjustments:

Ground 1: Change in Material Circumstances This refers to extraordinary events such as changes in market prices of basic raw materials, currency fluctuations, interest rate changes, or demand/supply fluctuations caused by factors independent of the taxpayer and related party – circumstances that are difficult to predict, occur outside operating activities, and are unrelated to general business risk.

Ground 2: Knowledge of Actual Costs/Revenues This refers to situations where the transfer pricing model is based on budgets using historical cost information, and at year-end taxpayers recalculate transfer prices based on actual costs or revenues known only after the period ends. This model may lead to differences between assumed and actually realised profitability.

The Tax Authority’s Error

The Tax Authority’s fundamental error was conflating these two distinct grounds. The Authority concluded that the causes indicated by the Company (provisions, impairment write-downs, invoices posted after month-end, accounting errors, deferred income) were not “material circumstances” within the meaning of Ground 1, and therefore could not constitute transfer pricing adjustments. However, the Authority failed to analyse whether these corrections fell within Ground 2 – the “knowledge of actual costs/revenues” condition – which the Company had explicitly argued in its application.

Practical Implications for Transfer Pricing

This judgment has several important implications:

1. Budget-Based Pricing Models Are Recognised: The Court explicitly recognised that transfer pricing models based on budgets, plans, or cost estimates using historical cost information, with year-end recalculation based on actual figures, are legitimate and fall within Article 11e(2) of the CIT Act.
2. Year-End True-Ups May Qualify as TP Adjustments: The judgment opens the door for year-end adjustments that reconcile budgeted to actual figures to be treated as transfer pricing adjustments (recognised in the year to which they relate) rather than ordinary corrections (recognised when the correcting invoice is received).
3. Distinction from Ordinary Corrections: The Court confirmed that not all corrections are transfer pricing adjustments. Corrections resulting from accounting errors, obvious mistakes, discounts, rebates, or changes in scope of services should be made on general principles under Article 15(4i)-(4k) of the CIT Act – i.e., recognised when the correcting invoice is received. The taxpayer should comply with the arm’s length principle during the tax year, so any non-compliance with ex-ante arrangements should be corrected on general principles.
4. Burden on Tax Authority: The judgment places the burden on the Tax Authority to properly analyse both grounds under Article 11e(2), not just the “material circumstances” ground.
5. Guidance for Future Cases: The Court instructed that in the new interpretation, the Tax Authority should assess whether the causes indicated by the Company that result in corrections to accounting revenues and costs affecting remuneration between related parties fall within the second condition of Article 11e(2) – “the taxpayer obtaining knowledge of the amount of actually incurred costs or obtained revenues forming the basis for calculating the transfer price”.

Outstanding Questions

The judgment does not definitively resolve whether the Company’s three types of corrections (A, B, and C) qualify as transfer pricing adjustments. Instead, it remands the matter to the Tax Authority for proper analysis under the correct legal framework. Key questions remain:

• Do all three correction types (A, B, C) fall within the “knowledge of actual costs/revenues” ground?
• How should corrections made after financial statement approval (Correction C) be treated?
• What documentation standards apply to demonstrate that adjustments meet Article 11e conditions?

CONCLUSION

The Court partially annulled the Tax Authority’s interpretation where it found the Company’s position incorrect, whilst dismissing the complaint regarding the part where the Authority found the position correct. The Court awarded costs of 697 PLN to the Company, comprising a court fee of 200 PLN, stamp duty of 17 PLN, and tax adviser’s fees of 480 PLN.

This judgment represents an important development in Polish transfer pricing jurisprudence, clarifying that year-end adjustments reconciling budgeted to actual figures may constitute transfer pricing adjustments under the second limb of Article 11e(2) of the CIT Act, provided the conditions are met. The Tax Authority must properly analyse both grounds for transfer pricing adjustments, not merely the “material circumstances” ground.

The case will now return to the Tax Authority for a fresh interpretation applying the Court’s legal analysis to the specific facts of the Company’s three correction scenarios.