This is to alert you to a public tax ruling issued by the Finance Minister on 15.04.2020 (ref. SP4.8223.1.2020, published on 24.04.2020). The ruling deals with the withholding of income tax on certain payments made to non-residents by foreign permanent establishments (PE) of Polish residents.

With respect to a Polish resident’s foreign permanent establishment in receipt of benefits subject to Polish withholding tax under Article 29(1) of the PIT Act or Article 21(1) of the CIT Act, the Finance Minister notes that, given:

  • the specific status of such a PE, which is deemed to be functionally autonomous (deemed independence fiction), and
  • the real nature of activities carried out through the establishment,

the consequences of such transaction in terms of the duty to withhold Polish tax may differ depending on whether or not the benefits and the related expenses are attributed to the PE.

According to the Finance Minister, if the PE carries on a business and incurs an expense through its own means (which is also treated as its cost for tax purposes) to pay a non-resident an amount of the kind referred to in Article 21(1) of the CIT Act or Article 29(1) of the CIT Act, such payment should not be treated as Polish-source income. As such, it is not subject to Polish withholding tax and so neither the Polish resident nor its PE are required to withhold the tax.

However, if the expense incurred by such PE to make a payment under Article 21(1) of the CIT Act or Article 29(1) of the CIT Act to a non-resident does not serve PE’s business purposes and is attributable to the Polish headquarters rather than the PE, then the non-resident receiving the payment will earn income for the purposes of Article 3(3)(5) of the CIT Act or Article 3(2b)(7) of the PIT Act while the payer (PE) will be required to withhold Polish tax.

If this issue pertains to your business and you are interested in our assistance, please contact us.

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