WHT and Polish resident’s foreign establishment

On 24 April 2020, a general interpretation of the Minister of Finance (No. SP4.8223.1.2020) was published regarding the withholding tax (WHT) on payments made by a Polish resident’s foreign establishment to a non-resident.

It is intended to provide a remedy for existing doubts and disputes regarding whether in such situations a Polish resident or his foreign establishment is obliged – as a taxpayer – to collect withholding tax in accordance with the provisions of the Polish acts.

Identity of a foreign establishment

According to the Minister of Finance (MF), a permanent establishment that conducts actual business activity abroad should be treated for tax purposes – on the basis of a legal fiction – as a separate from its parent company, i.e. as if it was an individual and independent entity. Such a foreign establishment participates in the economic life of the other state and should be subject to its tax jurisdiction.

The above MF’s official position is mainly derived from the provisions of the OECD Model Convention on income and property tax, as well as the judgment of the Supreme Administrative Court in the panel of seven judges of 15 May 2017 (ref. no II FSK 3587/14).

Payments to non-residents

Following the above approach of the Ministry of Finance, the special nature of a Polish resident’s foreign establishment implies that in a situation where:

  • the foreign establishment conducts business activity,
  • for the purposes of which it purchases services,
  • and the expenses on the acquisition of services are covered from its own assets and constitute cost in the tax terms that should be attributable to this foreign establishment,

such payments to a non-resident will not result in income obtained in the territory of Poland (within the meaning of Article 3 (3) (5) of the CIT Act/Article 3 (2b) (7) of the PIT Act), and therefore a Polish resident or his foreign establishment will not be obliged to collect WHT.

However, the situation should be treated differently if the expenses for the purchase of a non-resident’s services do not serve the business activity purposes of a Polish resident’s foreign establishment and cannot be attributed to that establishment.

If you would like to discuss the possible impact of the above interpretation on your business activity, please contact us:

Łukasz Bączyk
Head of Tax
E: lbaczyk@asbgroup.eu

Marta Skrodzka
Tax Manager – Tax Adviser
E: mskrodzka@asbgroup.eu

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