The recent ruling by the Polish Administrative Court in the case of Poland vs. “H. Services Sp. z o.o.” (September 2025, Case No. I SA/Wr 175/25) sets a key precedent on the tax treatment of transfer pricing adjustments made at the end of the fiscal year, strengthening legal certainty for taxpayers and aligning Polish practice with international guidelines.
The controversy revolved around whether year-end adjustments could be recognized as transfer pricing adjustments under Article 11e of the CIT Act, or whether they should be considered mere accounting corrections. The ruling broadens the interpretation of this rule, aligning Polish practice with the OECD Guidelines and providing greater legal certainty to taxpayers who make adjustments to keep their margins within the arm’s length range.
Facts and background of the dispute
The case arises from a disagreement between the tax authorities and a Polish entity belonging to a multinational group regarding the tax nature of intra-group adjustments made at the end of the financial year.
- Subject of the dispute: “H. Services Sp. z o.o.”, a Polish entity belonging to a multinational group, which entered into a series of service and license agreements with companies in the same group.
- Year-end adjustments: At the end of the financial year, the company made adjustments to align the profitability of the tested party or to reconcile cost-based rates with actual figures.
- Tax administration’s position: The Polish authorities, in an individual interpretation, rejected that these adjustments could be treated as transfer pricing adjustments under Article 11e. Instead, they considered them to be ordinary accounting adjustments, which should be recognized in subsequent years.
- Key legal issue: Whether year-end adjustments (to bring profitability within the reference range, or to reconcile cost-plus charges with final results) qualify for recognition as transfer pricing adjustments within the same period, or whether they should be treated as deferred accounting corrections.
Court decision and reasoning
- Revocation of tax interpretation: The administrative court overturned the interpretation adopted by the tax authority and remanded the case for further consideration.
- Nature of transfer pricing adjustment: The court held that year-end adjustments designed to bring profitability within a benchmark or to reconcile cost-plus charges with actual values may be considered transfer pricing adjustments under Article 11e. They should not depend exclusively on the accounting form, but on the economic substance and functional profile of the parties.
- Economic and functional rationale: The court emphasized that transfer pricing adjustments must be analyzed from an economic and functional perspective, prioritizing the substantive reality of the transactions over their accounting form. In this regard, it recognized that the arm’s length principle is based on the economic function performed, the risks assumed, and the assets used, rather than on formal accounting documentation. This reasoning reinforces a modern interpretation consistent with the OECD Guidelines, in which ex post adjustment is conceived as a legitimate tool to accurately reflect the economic substance of intra-group transactions.
- Retrospective adjustments: When a price set in advance (ex ante) based on market assumptions later proves to be inconsistent with the arm’s length principle due to significant changes or because costs/revenues were only known after closing, that adjustment may be recognized in that fiscal year as a compensating adjustment.
- Difference with accounting errors: The court made it clear that obvious accounting errors or mistakes do not justify a transfer pricing adjustment; these must be corrected through general accounting or tax rules, and not through the special mechanism of Article 11e.
- Legal alternatives to Article 11e(2): The court found that the tax authority had erred in failing to distinguish between the options allowed in Article 11e(2) by rejecting adjustments derived from budget models. Provided that legal conditions are met, such as reciprocal adjustments by the counterparty and the exchange of information, the company may recognize the adjustment in the corresponding period.
- Consistency with OECD guidelines: The court’s analysis explicitly mentions that its approach is consistent with OECD rules on compensatory adjustments, in which the taxpayer may adjust the price for tax purposes, even if it differs from the contractually applied price, to align with the arm’s length principle.
Technical and practical implications
The ruling has a significant impact on the tax management of multinational companies operating in Poland. From a practical perspective, it consolidates the possibility of recognizing transfer pricing adjustments within the same fiscal year, provided that there is documentary evidence and reciprocity between the parties.
Recognition in the relevant fiscal year
This decision allows Polish taxpayers to claim transfer pricing adjustments within the same period, rather than postponing their recognition, when the legal criteria are met. This improves the alignment between accounting and taxation, reducing distortions in tax results.
Contractual and functional strategy
Companies must design contractual clauses that allow for bilateral adjustments and document reconciliation mechanisms from the outset in order to comply with the requirements of Article 11e. It is essential that the contract provides for the possibility of retroactive adjustments and that there is reciprocity between the parties.
Supporting documentation and functional analysis
To support transfer pricing adjustments, it is essential to document in detail the functions, assets, and risks (FAR) of each entity, as well as to demonstrate that the adjustment is based on subsequent objective information, not merely arbitrary accounting rewriting.
Audit risk
This ruling reduces the risk of legitimate adjustments being rejected if they are well documented. However, taxpayers must be careful to distinguish between authorized transfer pricing adjustments and simple accounting corrections that do not meet the legal criteria.
Harmony with international policies
The decision aligns Polish practice with international (OECD) principles on compensatory adjustments, strengthening the predictability and legitimacy of the mechanism for multinational groups operating in Poland.
Conclusion
The ruling of the Polish Administrative Court in the case of H. Services Sp. z o.o. represents a doctrinal advance in the interpretation of intra-group transfer pricing adjustments. It recognizes that certain year-end adjustments may qualify as transfer pricing adjustments if they are based on post-closing changes and meet the requirements of Article 11e. This reinforces the importance of advance contractual planning, robust functional analysis, and rigorous documentation.
For companies with intragroup operations in Poland and other jurisdictions with similar rules, this precedent offers greater flexibility and legitimacy to incorporate tax adjustments within the corresponding fiscal year, always within the legal framework.
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