A transfer pricing income adjustment may create risk not only for the company itself. In certain circumstances, a management board member, including a CFO, may also become personally liable for the resulting tax arrears with all of their assets.
The process begins with an income adjustment at company level
If the tax authority determines that the conditions of a transaction between related parties differ from those that would have been agreed between independent entities, it may reassess the taxpayer’s income or loss without taking into account the conditions resulting from those relationships.
If the reassessment results in additional tax and that tax is not paid by the applicable deadline, tax arrears arise at company level.
When can the risk extend to a management board member?
At the next stage, Article 116 of the Polish Tax Ordinance may become relevant.
If enforcement against the company’s assets proves wholly or partly ineffective, the company’s tax arrears may, under certain conditions, be recovered jointly and severally from members of the management board with all of their personal assets.
What matters is the formal role as a management board member, rather than the job title itself. A CFO who also serves on the management board may therefore be in the same position as the president or any other board member.
Personal liability does not arise automatically
A transfer pricing adjustment does not in itself automatically result in personal liability for the CFO or another board member.
Relevant factors include, among others, the period during which the individual served on the management board, the ineffectiveness of enforcement against the company and the existence of circumstances allowing the board member to be released from liability.
Each case therefore requires a separate assessment both from the perspective of the company’s tax liability and the statutory conditions for personal liability.
A transfer pricing dispute may extend beyond the company’s assets
A transfer pricing dispute may begin with an assessment of the terms of transactions between related parties. However, if the adjustment results in tax arrears and enforcement against the company proves ineffective, the consequences may, in certain cases, extend to the personal assets of management board members.
For this reason, transfer pricing risk should be analysed not only from the company’s perspective, but also from the perspective of the individuals responsible for its management.
Please contact us if your organisation requires support in assessing the risks associated with transfer pricing adjustments and management board liability.
We support businesses in analysing transfer pricing risks, including the potential consequences of income adjustments and the liability of management board members for the company’s tax arrears. We also assist in reviewing documentation, transaction terms and areas where the level of risk can be reduced.
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