This is to let you know of recent taxpayer-unfriendly case law on the interpretation of the term “industrial device” for withholding tax (WHT) purposes.
In accordance with Article 21(1)(1) of the Corporate Income Tax Act, Polish taxpayers making payments to foreign parties in consideration for use, or right of use, of industrial devices must generally withhold Polish tax at source at the rate of 20%. At the same time, taxpayers have for years been in dispute with tax authorities about the meaning of “industrial device” under those regulations. Courts dealing with such disputes by way of judicial review generally took the side of taxpayers, holding that for a device to be an industrial device for WHT purposes, it must be an industrial device in the functional sense, i.e. must be intended for use in production processes.
However, newer court decisions suggest a departure from that line of authority. Some recent decisions expressly state that the latest case law from the top administrative court NSA clearly departs from the previous, narrow definition. According to these courts, an industrial device includes any device used in business transactions as long as it is connected with the business of the given company. There is no need for it to be used directly for production. Now that the definition of industrial device no longer requires use in production processes, income from use, or right of use, of an industrial device has been held to accrue (with WHT consequences) in such cases as fees for use of laptops (judgments by WSA court in Poznań: of 4 Jun 2024 in case no. I SA/Po 202/24 (appeal pending) and of 14 May 2024 in case no. I SA/Po 193/24) or of server space (judgment of NSA court of 16 May 2024 in case no. II FSK 1078/21).
Therefore, companies are facing a serious risk of a taxpayer-unfriendly line of authority developing on this issue, with the potential end result being that WHT will apply to lease or rent payments on a wide array of devices by reason only of the fact that they are business-related. What is more, as this new judicial approach does not result from any changes in law, it may affect also WHT matters from prior years.
If this issue pertains to your business and you are interested in our assistance, please contact us.
This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.