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Advicero Nexia | TAX UPDATE | February 2024

  1. Delayed entry into force of the National e-Invoicing system?
  2. Supreme Administrative Court refuses to issue an opinion on application of preferences
  3. No VAT on the salary of a dependent board member
  4. Can a laptop and a rented apartment constitute a foreign permanent establishment?
  5. One-time amortization on photovoltaic installation
  6. Redemption of shares in a family company as a controlled transaction
  7. Movement of own goods vs. obligation to invoice using the National e-Invoicing System

1. Delayed entry into force of the National e-Invoicing system?

Minister of Finance Andrzej Domanski announced at a press conference on January 19th 2024 that mandatory e-Invoicing will not be implemented in 2024.

The minister admitted that critical flaws in the system have been identified, which do not allow the National e-Invoicing System (KSeF) to be implemented safely on July 1st, 2024. Consultations with entrepreneurs and an external audit were announced, on the basis of which a new date for the introduction of structured invoices will be determined, but it will not be in 2024.

The biggest problems noted so far are problems with the capacity of the system itself and IT issues related to the security of its use. The minister indicated that further work is needed to prevent a situation that would paralyze the operations of Polish businesses.

This decision may come as a bit of a surprise given earlier assurances that the KSeF would be introduced in 2024. However, many entrepreneurs breathed a sigh of relief, knowing that they have more time to prepare. Indeed, it should be emphasized that the Minister stressed that the tax authorities are not giving up on the KSeF idea, and that it is only a postponement, probably “to early 2025.”

However, the National e-Invoicing System will certainly not bypass entrepreneurs, so it is advisable to get acquainted with the structure of its operation as early as possible and be prepared for its introduction – feel free to contact us.

2. Supreme Administrative Court refuses to issue an opinion on application of preferences

In December 2023, the Supreme Administrative Court three times accepted the refusal to issue an opinion on the application of withholding tax preferences. According to the Supreme Administrative Court, the taxpayers did not sufficiently prove that they met the conditions for the preference.

According to the regulations, the tax authority may refuse to issue an opinion on the application of preferences (WH-WOP) when certain conditions are not met and in the case of:

  • reasonable doubts about the accuracy of the presented documents or the taxpayer’s statement that he is the real owner of the receivables,
  • the existence of a reasonable suspicion that the taxpayer does not carry out real economic activity in the country of residence.

The court pointed out that it is the taxpayer’s responsibility to prove that in a particular state of facts the conditions for applying the WHT exemption apply. In practice, this means that the taxpayer, in order to receive an opinion on the application of the preference, will have to state the facts as precisely as possible and have as much documentation as possible to confirm them, so that no doubts arise on the part of the authority as to the entitlement to apply the exemption.

In addition, the Supreme Administrative Court pointed out that in the cases in question, the capital income of foreign holding companies, which are recipients of payments, significantly exceeds their operating income, which undermines the actual nature of their activities.

These judgments (Case No. II FSK 27/23, II FSK 28/23, II FSK 29/23) confirm the restrictive jurisprudential and interpretive practice in the application of WHT exemptions and may lead to a dangerous automatism in considering holding companies as artificial structures.

Nevertheless, at Nexia Advicero we have experience in this area and know how to obtain positive opinions on the application of preferences (WH-WOP) – i.e. what arguments to use and what documents to submit to obtain a positive ruling from the tax authority.

3. No VAT on the remuneration of a dependent board member

When a member of a company’s management board does not act in his own name or on his own responsibility and does not bear the economic risk of his activity, he does not carry out independent economic activity, and therefore is not obliged to pay VAT on his remuneration, the Court of Justice of the European Union has ruled (ref.: C-288/22).

The preliminary questions were submitted to the CJEU by a Luxembourg court, but in view of the harmonization of European VAT regulations, the ruling can also be applied to the situation in Poland.

The case concerned a member of the board of directors of several joint-stock companies who was in charge of accepting reports from executives, discussing strategic proposals, selecting operational management, etc. For this, he received remuneration, sometimes set as a percentage of profit and sometimes as a fixed amount.

The Luxembourg fiscal authorities argued that the board member in question was engaged in an independent business, and thus should pay VAT on his remuneration. The CJEU disagreed with this position, pointing out that the board member brings know-how and expertise to companies, but does not bear any risk associated with his decisions. Therefore, the board member does not act in his own name or on his own responsibility, which leads to the conclusion that his activities are not independent.

In the context of the above-mentioned CJEU ruling, it is worthwhile to analyze what responsibilities board members of individual companies have in your business, from a VAT perspective.

4. Can a laptop and a rented apartment constitute a foreign permanent establishment?

A hotel room or apartment rented for a few weeks does not constitute a permanent establishment, and the additional possession of a programmer’s laptop or other tools does not contribute to the establishment of a permanent foreign establishment, the Provincial Administrative Court in Wrocław ruled on October 10th, 2023 (ref. I SA/Wr 261/23).

An IT specialist who had a registered business in Ukraine provided services remotely to a Ukrainian contractor first from a hotel in Poland and later from a rented apartment. In June 2022, he registered his business in Poland, and in July of the same year he received the last income from his business registered in Ukraine. As a result, he applied to the Head of the National Tax Information Service (hereinafter: KIS) to ask how to tax his income for 2022. The authority considered that the activity conducted under a Ukrainian company from the territory of Poland fulfills the conditions of a foreign permanent establishment as stipulated in the double taxation avoidance agreement concluded between the Republic of Poland and the Government of Ukraine.

The Provincial Administrative Court in Wrocław disagreed with this position, pointing out that the IT specialist did not have any premises in Poland that could be considered an office, factory or workshop. The very nature of the indicated services makes it possible to provide them from anywhere in the world, making it impossible to point to a specific space where activities of a permanent nature would be carried out. In addition, the short period (from April to July) of conducting the aforementioned activities contradicts the permanent nature of the establishment. The PAC’s ruling can be considered significant from the perspective of foreign permanent establishment regulations.

Therefore, in any case of a change or risk of a change in tax residence, an appropriate analysis should be made in the context of taxation as well as taxation rules. Working from abroad, although highly desirable for employees, in practice can cause significant doubts for employers, in which we are happy to share our experience with you.

5. One-off depreciation of a photovoltaic installation

If certain conditions are met, it is possible to depreciate photovoltaic expenses in tax costs on a one-off basis, according to an individual interpretation by the Director of the National Tax Information dated November 14th, 2023 (sign: 0112-KDIL2-2.4011.668.2023.3.MM).

A sole proprietor in the business of renting commercial and service premises is considering building photovoltaic installations on the roof of a building he does not own. In his application for an individual interpretation, he indicated that he meets the criteria of a small taxpayer, and that the planned investment is to be a stand-alone device with the characteristics inherent in a fixed asset. In addition, the photovoltaic installation falls under group 6, subgroup 66, type 669 – other non-industrial equipment of the Classification of Fixed Assets.

The tax authority said that when meeting the criteria of a “small taxpayer”, when the photovoltaic installation is a stand-alone fixed asset that will be entered in the fixed asset register, it is possible to make a one-off depreciation write-off on the initial value of this fixed asset, in settlement for the month in which the investment is put into use.

In such a case, care must be taken to ensure that appropriate provisions are made in agreements and accounting documents.

6. Redemption of shares in a family company as a controlled transaction

The Supreme Administrative Court overturned four judgments of the Provincial Administrative Court in Poznań, saying that the voluntary redemption of shares in a company whose remaining as well as withdrawing partners are related persons can be considered a controlled transaction.

The facts were as follows: three of the five shareholders, between whom there were family ties, decided to withdraw from the company through voluntary redemption of shares. On this basis, the director of the National Tax Information ruled that the shareholders and the company were related parties, so the act of voluntary redemption of shares would be a controlled transaction. The individual interpretations issued were subsequently overruled by the Provincial Administrative Court in Poznań, which claimed that there were no connections between the company and the shareholders.

The Supreme Administrative Court disagreed, stating in its rulings (refs. II FSK 226/21, II FSK 227/21, II FSK 255/21, II FSK 256/21) that with the withdrawal of three of the five shareholders, they will have a decisive influence on the redemption of their shares, so due to this and their mutual family ties, the company and the withdrawing shareholders should be treated as related parties, and the transaction itself – as a controlled transaction.

The above is a risk in the case of a similar factual situation – so it is worthwhile to protect yourself in advance against a negative decision of the tax authority and secure, at least with a positive individual interpretation of the tax authority, in which we will present in detail the facts of a specific case.

7. Movement of own goods vs. obligation to issue an invoice using the National e-Invoicing System

Taxpayers with a permanent place of business in Poland making an intra-Community supply of goods will be required to issue an invoice using the National e-Invoice System (KSeF).

A company under German law, which has a permanent place of business in the territory of Poland, performs, among other things, intra-community movement of goods and intra-Community supply of goods (IC) as part of its activities. In connection with the entry into force of the KSeF, the company raised a doubt as to whether it will have to document the delivery of goods under the IC using the KSeF, in case its permanent place of business is involved in such deliveries.

The tax authority pointed out that the new provision of Article 106g (1) of the Law on Value Added Tax of March 11th, 2004 (i.e., Journal of Laws 2023.1570, as amended) will apply, according to which taxpayers will be required to issue structured invoices using KSeF. This obligation will also apply to taxpayers with a permanent place of business in Poland, which place participated in the transaction for which the invoice will be issued.

This means that in the factual situation presented in this way, the supply of goods under the IC will have to be documented by a structured invoice issued using KSeF.

More details can be found in an individual interpretation by the Director of the National Tax Information dated December 21st, 2023 (sign: 0114-KDIP1-2.4012.484.2023.2.GK). It shows that taxpayers will have to pay special attention to several issues, i.e. the necessity to document such transactions with invoices, which means that according to the updated regulation on the detailed scope of data contained in tax returns and VAT records, from January 1st, 2025 it will be necessary to show the KSeF number of a sales invoice in the JPK_VAT.

Moreover, failure to issue an invoice despite the existence of such an obligation will be punishable by a fine under the penal fiscal code. Moreover, the moment when the tax obligation arises, taking into account that if such a shipment is documented with an invoice the tax obligation will arise on the date of issuing the invoice, i.e. earlier than in the case when the supply is not documented with an invoice.

Also important is the fact that exchange rates, for VAT purposes, the average exchange rate of the National Bank of Poland (NBP) on the last business day preceding the date on which the tax obligation arises is used to convert foreign currency. Given that in the situation of issuing an invoice, the tax obligation will arise earlier than in the case of not issuing an invoice, this will also affect the rate that should be adopted to convert the value resulting from an invoice issued in foreign currency.

The above shows that taxpayers should keep an eye on the approach of tax authorities and administrative courts to the issue of documenting non-transactional shipments of own goods, and should not remain indifferent to possible changes in prevailing practice.

It is clear from the above, as well as from the information shared on our social media, that the topic of KSeF should be properly implemented in company structures and is very important in terms of tax liability.

In addition, according to media reports from the Ministry of Finance – the effective date of the KSeF may be extended (see entry No. 1).

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