This is to alert you to a judgment of the Supreme Administrative Court (“SAC”) dated 15 December 2020 in case no. II FSK 2430/18, for which the court has recently published a statement of reasons.

This is the first on-the-merits SAC judgment on the matter of withholding tax (“WHT”) on payments for sales agency services after the tax authorities adopted a more restrictive approach to WHT on professional services.

Under Article 21(1)(2a) of the CIT Act, WHT applies to payments in respect of the following services: advisory, accounting, market research, legal, advertising, management and control, data processing, staff recruitment and acquisition, guarantees and suretyships, or similar services. Until about 2018 tax authorities maintained that no WHT needs to be charged on payments for sales agency services. But they changed their view between 2018 and 2019 and adopted a more restrictive approach to the detriment of Polish withholding agents.

The subject SAC case is bad news for Polish withholding agents. The court held that sales agency services have certain characteristics of advertising and management services and as such are subject to WHT.

The case may also have adverse consequences in terms of limits on the tax deductibility of expenses incurred to pay sales agents that are related parties. The reason is that the list of payment types for which Polish payers are required to withhold tax is in crucial aspects identical to Article 15e restricting the deductibility of expenses incurred for the benefit of related parties.

We regularly monitor case law relating to this matter.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant.

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