One of the most visible trends in the market today is a flexible working arrangements. Employers are increasingly decide to offer ‘home office’ benefit, i.e. working remotely from the employee’s home (or from other foreign destinations). When offering to work in such a system, in addition to the basic organizational challenges, the employer should also take into account additional relevant issues such as the tax risks of remote working. In particular, this relates to situations where the employee will perform his or her remote work on the territory of a country other than Poland.
An increasingly common position of the tax authorities identifies the risk of a permanent establishment already in the case of the mere transfer of computer equipment. Although this position is not yet generally accepted, the employer should be aware of the risks presented by the authorities or administrative courts and determine the level of tax risk on this basis.
What is a fixed place?
A fixed place, in the context of double taxation treaties (hereinafter: ‘DTT’) or Polish income tax acts, is understood to be a place through which an entity with its registered office/residency or management board in the territory of one state carries out wholly or partly its activities in the territory of another state. In particular, it is, i.a., a branch, representative, office, factory, workshop or natural resource extraction site.
The term can also be understood as a separate space of a country where a branch of a foreign company is located. In order for a place to be considered a ‘fixed place’, the company must be able to carry out its activities in that area, even if it does not have legal title to the place where the persons employed by the entrepreneur perform their work. In this context, it should therefore be emphasized that an office space (e.g. coworking space), the rent of which is paid by the foreign employer, as well as a place which is made available directly by the foreign contractor to persons posted to work in the territory of Poland, may can be considered as a fixed place. A constitutive feature of an establishment is that the fixed place should be wholly or partly related to the business activity, except that it cannot be of an auxiliary or preparatory nature.
Computer equipment and the fixed place – position of the tax authorities
The position of the tax authorities, which has recently appeared. suggests that placing computer equipment at the disposal of employees may involve a fixed place, which may be, for example, the employee’s flat. Such a position was stated by the Director of the National Fiscal Information (hereinafter: ‘the Authority’) on 17th February 2022 (ref. 0111-KDIB1-2.4010.655.2021.2.BD), who unequivocally indicated that even though the company does not intend to rent any premises in the territory of Poland, the mere use of laptops provided by the company to perform remote work may result in its creation. A similar position can be seen in an tax ruling issued later, i.e. on 22nd March 2022 (ref. 0111-KDIB1-2.4010.699.2021.1.ANK).
Justifying his position, the Authority, in the situation of the employment of a Polish employee performing work in the form of ‘home office’ in the territory of Poland, indicated that there is an establishment in a situation where the subject of activity in this mode overlaps with the activity of the company. Moreover, according to the Authority, a fixed place may exist through the possession of a certain space in which the economic activity of the company is conducted, the legal form authorizing its disposal being irrelevant. Furthermore, the Authority pointed out that, despite the lack of real estate facilities, the home office work can be considered to bear the characteristics of a permanent and regular activity and, as a result, the conditions for the existence of a fixed place in terms of the nature of its operation are deemed to be fulfilled.
According to the Authority’s reasoning, the employee’s flat counts as an company space due to the company-owned computer equipment located therein (in these cases this included a laptop enabling remote working).
It is also worth noting a section from the Commentary to the OECD Model Convention on Income and Wealth Tax, according to which: ‘(…) a fixed place includes any premises, means or equipment used for the conduct of an enterprise’s business, whether or not they are used exclusively for that purpose. The fact that an enterprise has at its disposal some space available for its business activities is sufficient for the existence of fixed place of business (a fixed place may also exist if there are no premises).’ The authorities, referring, i.a., to this reasoning, take the position that the nature of the fixed place can be determined by the mere provision of computer equipment to the employee’s disposal.
Different position of the courts
The Voivodship Administrative Court in Gliwice, in its judgment of 12nd October 2022 (ref. no. I SA/Gl 547/22), took a different view to the position of the authorities and pointed out that the transfer of computer equipment to employees does not result in the separate of space for the company to have at its own disposal and, consequently, there is no possibility for this activity to identify the nature of the operating a ‘fixed place’. In this context, the fact of working on a ‘home office’ is irrelevant as the company will not have any right to dispose of or manage the employee’s residential space where the outsourced tasks will be performed. Moreover, in the case at hand, the company did not undertake to provide and make available any space to the employees, and, therefore the office equipment located in the employee’s flat does not lead to the recognition of the creation of a permanent establishment due to the mere fact of the transfer of the laptops.
Although the court in the above-mentioned judgment recognized that, in connection with the performance of the ‘home office’ and the identified case, activities are performed by employees on a regular and permanent basis, the submission that placing computer equipment at the disposal of employees may give rise to a fixed place is incorrect, as confirmed by the following statement of the court: “(…) The reasoning presented on this issue in the appealed interpretation leads to an absurdity – for it follows that Employees will constitute a fixed place wherever business activities are performed by them (e.g. when they take their laptop on holiday and send a business message from the hotel). In the Court’s view, it does not appear from the description of the facts/future event that the Company has any right to dispose or manage of the Employees’ living space. Thus, the second premise indicated by the Director is not fulfilled.”
Given the inconsistent position on this issue, each case should be analyzed separately for the purposes of determining whether the entrepreneur in question has a fixed place in the territory of Poland. At the same time, it should be assessed in each case whether the activity carried out is of a permanent and consistent nature. All circumstances also depend on the range of duties of the employees concerned, as well as the type of equipment transferred. Although there are more and more recent judgements negating the approach of the authorities on this issue, the risk of a fixed place cannot be completely excluded with a form of remote work. Although the claim that the mere transfer of hardware can give rise to an establishment seems to be an abstract approach, due to the existing risk of recognizing a fixed place, the legal position should be assessed on a case-by-case basis. If you are interested in detailed analysis of such risks, please do not hesitate to contact us.