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Transfer Pricing Alert – listed companies’ new reporting obligations concerning transactions with related parties


17.01.2020

Transfer Pricing Alert – listed companies’ new reporting obligations concerning transactions with related parties

New reporting obligations for listed companies were introduced under the Act on Amending the Act on Public Offerings and Conditions for Introducing Financial Instruments to an Organised Trading System and on Public Companies dated 16 October 2019 and Certain other Acts. The Act has been in effect since 30 November 2019. The regulations in questions are the outcome of the implementation of Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017.

The purpose of the implemented amendments and new mechanisms is to secure the interests of the company and its shareholders by enhancing the transparency of the company-shareholder relations and, as a result, to encourage shareholders (including institutional ones) to a long-term engagement. As transactions with related parties may be detrimental to listed companies, a mechanism was introduced to secure the interests of the company and its shareholders other than related parties, including minority shareholders.

Listed companies were obliged to place on their websites information about the conclusion of material related party transactions. The obligation to provide information about a material transaction arises at the latest upon the conclusion thereof. Information placed on the company’s website must contain:

  • name of the related party (party to the transaction concluded),
  • description of the nature of existing relations,
  • material transaction date and value,
  • information justifying the rationale for the transaction from the perspective of the company and its shareholders other than the related parties, in particular minority shareholders, as well as information about the adopted transaction valuation principles enabling an assessment of its arm’s length nature.

The definition of a material related party transaction covers a transaction the value of which exceeds 5% of the total assets (within the meaning of the Accounting Act) established based on the last approved financial statements. A related company should be deemed to be a “related party” within the meaning of international accounting standards. This approach is to ensure the coverage by the new requirements of the most important transactions.

In the case of recurring performances carried out based on a fixed term agreement, the transaction value is determined based on the value of the performances provided over the entire agreement term. Where an agreement is entered into for an indefinite term, the transaction value is assumed to be the value of the performances provided during the first 3 years.

The Act also provides for a requirement to express the supervisory board’s consent to the execution of material transactions. The purpose behind it is to protect the interests of the company and the shareholders other than related parties, including minority shareholders. Furthermore, in a public company a procedure must be followed to periodically assess whether transactions executed with related parties complied with the arm’s length principle. This procedure is designed by the supervisory board.

However, certain exceptions are envisaged under the Act. Material transactions will not be deemed the following: 

  • transactions concluded at arm’s length as part of the company’s ordinary operations,
  • transactions concluded by a company with its related company, where the former is the sole shareholder of the latter,
  • the material transaction definition also excludes transactions connected with the payment of fees to members of the management board or supervisory board, provided that the fees comply with the remuneration policy adopted in the company.

The principles applicable to material transactions will also be used for transactions entered into between a public company’s related parties (where the transaction value exceeds 5% of the total assets).

If you would like to obtain more information about the obligations introduced, please do not hesitate to contact me.

Krystyna Szydłowska

Leader of Transfer Pricing Practice

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