Landmark case on royalties and transfer pricing
In March 2025, the Polish Supreme Administrative Court ruled on the case “Poland vs. Fertilizer Licence S.A.” (Case No. II FSK 916/22), setting an important precedent regarding the treatment of license agreements and the power of the tax administration to reclassify them.
Relevant facts of the case
The company Fertilizer S.A., a Polish fertilizer manufacturer, transferred the legal ownership of its trademarks to its subsidiary “B” and then signed a licensing agreement to continue using them, which generated the payment of significant royalties. However, the Polish tax authority considered that “B” only fulfilled an administrative function and recharacterized the contract as a brand management service, thus limiting the deductibility of the payments.
Decision of the lower courts
Although the court of first instance supported the position of the tax authority, the Regional Administrative Court ruled that, according to the legal framework in force during the audited period (2013-2014), it was not legally viable to reclassify a legally valid operation. The current regulation only empowered the authorities to adjust income if it was demonstrated that the prices between related parties were not market prices, not to change the nature of the contract.
Technical criteria on transfer pricing
The court stated that the assessment should focus on whether the royalties were in line with the arm’s length principle, applying recognized methods such as the Comparable Uncontrolled Price, the Cost Plus Method or the Resale Price Method. It rejected the retroactive application of the 2017 OECD Guidelines, as they had no legal force in the period in question and had not been officially translated into Polish.
Final decision of the Supreme Court
On March 19, 2025, the Supreme Administrative Court upheld the regional court’s ruling and rejected the appeals of both the company and the tax administration. This ordered a correct valuation of the royalty payments using appropriate transfer pricing methods, without disregarding the validity of the original license agreement.
Reflection and recommendations
This ruling sets a crucial precedent on the limits of the tax administration in the reinterpretation of transactions between related parties. It reaffirms the importance of correctly structuring operations and having a technical analysis of transfer pricing, especially in contracts of intangibles.
Does your company transfer intangibles or pay intra-group royalties?
At TPC Group we have a specialized team that can help you structure and defend your transfer pricing policies in accordance with current legislation. Contact us today and ensure the fiscal soundness of your international operations.
Source: tpcases.com