- VAC accepts the application of the look through approach for interest receivables
- Important CJEU judgment on VAT deduction on intra-group services
- Major tax changes effective from 2025
- The subrogation agreement meets the definition of hidden profits to be taxed
- From when will a foreign company be a PIT remitter? – important judgment of the SAC
- Obligatory split payment extended for another 3 years
1. VAC accepts the application of the look through approach for interest receivables
In its judgment of 3th January 2025 (ref. no III SA/Wa 2385/24), the Voivodship Administrative Court (hereinafter: ”VAC”) in Warsaw confirmed that the taxpayer’s obligations in terms of withholding tax (WHT) related to the payment of interest by a Polish branch of a Luxembourg company should be assessed in relation to the beneficial owner of these receivables.
The dispute in the present case boiled down to whether the company would be able to apply the look-through approach and consequently be entitled to benefit from the protection of the double tax treaties by bypassing the UK intermediary. The Polish branch of the Luxembourg company paid interest to the UK vehicle, which passed the funds on to the US entity, which was the beneficial owner. Doubts arose in this area, which the Luxembourg branch of the company addressed to the Director of National Tax Information (hereinafter: ”DNTI”). In his opinion, according to the look through approach, the Polish-American and Polish-British double taxation treaty should apply in this situation. It follows that WHT need not be levied on interest paid in such a situation.
DNTI, however, was of a different opinion and took the view that the taxpayer would be the UK vehicle. The tax ruling was challenged and the VAC in Warsaw overturned DNTI tax ruling, agreeing with the applicant that the tax consequences should be assessed in relation to the beneficial owner of the interest. This is in line with the look through approach in withholding tax, which assumes that it is crucial to determine the tax status of the actual beneficiary and not the intermediary entity. This means that the intermediary entity (vehicle) cannot be treated as a taxpayer and the tax consequences should be determined on the basis of the established beneficial owner of the funds.
Although this judgment is not yet final (the written reasoning of the judgment has also not been published), it gives hope for a more favourable approach of the tax office in this respect. Many Polish companies are confronted with payments to foreign counterparties as well as shareholders (dividends, interest) – in such cases, it is worth analysing such payments. At Nexia Advicero, we have extensive experience in these and other withholding tax matters. We invite you to contact us for the correct approach on WHT grounds for foreign payments.
2. Important CJEU judgment on VAT deduction on intra-group services
The Court of Justice of the European Union (hereinafter: ”CJEU”), in its judgment of 12 December 2024 in Case C-527/23, decided the case of a Romanian VAT taxpayer who had been denied the right to deduct input VAT in relation to the acquisition of administrative services provided within the same group of companies by the tax authorities.
The dispute with the Romanian tax authorities concerned whether the services acquired by the taxpayer were not necessary for carrying out VAT-taxable activities. The services were provided simultaneously to other companies in the same group. The case went to a Romanian court, which referred a preliminary question on the matter to the CJEU.
The CJEU took the view that the right to deduct VAT could not be denied for this reason. It emphasised in the judgment that the VAT Directive does not make the exercise of the right of deduction dependent on the criterion of economic viability of the transaction giving rise to the VAT charge. The common VAT system guarantees, in terms of the tax burden, the neutrality of any economic activity, regardless of its purpose or result, provided that it is in principle subject to VAT.
The CJEU considered the circumstance that administrative services are provided simultaneously to multiple entities to be irrelevant in the context of VAT deduction. The key is to demonstrate that the VAT-taxed services purchased were used by that taxpayer for its own VAT-taxed transactions.
This judgment may be relevant to similar VAT accounting cases with group entities, for this type of service. We would be happy to advise you on the approach to be taken in such cases.
3. Major tax changes effective from 2025
The new year has brought significant changes to tax legislation, including additional reporting obligations, modifications to CIT, VAT or real estate tax.
Entrepreneurs, in order to remain compliant, need to adapt to these changes. Here are the most important changes that came into force at the beginning of 2025:
- Global minimum tax – implemented into the Polish system from the Pillar II Directive. From the beginning of 2025, it will cover the largest corporations – groups with consolidated revenues of more than €750 million per year, in two of the four previous financial years.
- SAF-T CIT – from 2025, this will cover the largest entities, i.e. tax capital groups (irrespective of the value of revenue earned) and taxpayers with revenue earned in the previous tax year exceeding the equivalent of EUR 50 million;
- Voluntary cash PIT – a preference giving the possibility to pay PIT upon receipt of payment for goods/ services rendered, as well as the possibility to deduct tax-deductible costs on the date of payment for goods or services received. It may be used by sole proprietorships with a revenue in the preceding year of less than PLN 1 million;
- Real estate tax – on 1st January 2025, an amendment to the Act on Fees and Local Taxes came into force and introduced, among other things, new definitions of a building and a structure;
- VAT exemption for small entities in EU countries – VAT exemptions not only in the country of establishment, but also in other EU countries, the amount of entity exemption is still PLN 200,000.
Adapting to any change in tax law is undoubtedly a challenge for any taxpayer. Should you wish to receive details of a particular change and its consequences, our specialists at Nexia Advicero can assist you. We also invite you to visit our blog where you can learn more about some of the changes.
4. The subrogation agreement meets the definition of hidden profits to be taxed
In a judgement of 27 November 2024 (ref. no I SA/Gl 529/24), the Voivodship Administrative Court (hereinafter: ”VAC”) in Gliwice indicated that a subrogation agreement, similarly to a loan agreement, may be treated as a hidden profit under the Corporate Income Tax Act (hereinafter: ”CIT”).
he case concerned a company subject to the lump-sum tax on corporate income (so-called Estonian CIT), which provided financing to a related party. It applied to the Director of the National Tax Information (hereinafter:”DNTI”) for a tax ruling asking whether a subrogation agreement could result in hidden profits. DNTI, in a tax ruling of 5th February 2024 (case number: 0111-KDIB2-1.4010.515.2023.1.AR), took the view that subrogation, which consists in taking over the debt of another company within a capital group, is in fact a form of financing, which consequently leads to the need to tax this mechanism as a hidden profit.
The applicant challenged the tax ruling before the administrative court. However, in its judgment, the VAC in Gliwice shared the tax office’s arguments and justified that the legal definition of hidden profits in Article 28(3) of the CIT Act provides for a very broad range of events that may subsequently be recognised as hidden profit. It follows from the wording of this provision that it encompasses all those situations in which a shareholder (directly or indirectly) would receive some benefit from the company by virtue of participation in the company other than dividends due to the performance criterion applied ‘in connection with the right to share in profit’.
The judgment is not final, but it shows how broad the concept of hidden profits is under CIT, which consequently triggers the obligation to tax them. It is therefore necessary to analyse all actions taken/planned in the company in order to be able to foresee the tax consequences, so we encourage you to contact Nexia Advicero.
5. From when will a foreign company be a PIT remitter? – important judgment of the SAC
The Supreme Administrative Court (hereinafter: ”SAC”) in a judgement of 18 December 2024 (ref. no II FSK 362/22) that a foreign company may be obliged to collect personal income tax (hereinafter: ”PIT”) on salaries paid in Poland, even if it does not have a tax establishment there.
The case concerned a German company that posted employees to Poland. Under the provisions of the double taxation treaty between Poland and Germany (hereinafter: ”DTT”), the German company did not formally have a tax establishment in Poland. It inquired with the Director of the National Tax Information (hereinafter: ”DNTI”) as to when its obligations as a PIT remitter would arise. In her view, this was to occur only when the tax establishment on the basis of the PIT was created.
DNTI disagreed with this position. The tax ruling was appealed to the Voivodship Administrative Court (hereinafter: ”VAC”) in Gliwice, and in its judgment of 2nd December 2021 (ref. no I SA/Gl 1243/21), which overruled the DNTI tax ruling, indicated that, as a PIT remitter, the company is obliged from the outset to collect and pay an advance on tax on salaries paid to employees seconded to work in Poland.
The judgment of the VAC in Gliwice was appealed to the SAC by DNTI. The SAC dismissed the cassation appeal, sharing the position of the administrative court of first instance. It indicated in the justification that the establishment’s establishment is not related to the obligations of the PIT remitter, but is only related to the obligations of the taxpayer. Therefore, at the moment of income of an employee delegated to work in the territory of Poland, an obligation will arise that is incumbent on the remitter.
This judgment is an important ruling for payers as well as PIT taxpayers operating in a similar employment/employment model. Nevertheless, it should be borne in mind that each ruling applies to an individual case, therefore it is advisable to apply to the DNTI for a tax ruling in each individual case (describing the facts in detail), which will ensure protection of the proceedings in question – in this respect, we encourage you to contact our advisers from Nexia Advicero.
6. Obligatory split payment extended for another 3 years
According to a decision of the European Commission, the VAT split payment mechanism will remain mandatory in Poland until 28th February 2028.
This is important information for VAT taxpayers who were previously obliged to use split payment. The mechanism was introduced in order to reduce tax fraud and safeguard budget revenues. It has proved to be an effective solution, resulting in an extension of its application. Pursuant to Article 108a(1a-1b) of the VAT Act, the split payment mechanism is essentially that when making payments for goods or services listed in Annex 15 to the VAT Act documented by an invoice in which the total amount due is:
- the amount of PLN 15,000 or
- its equivalent expressed in a foreign currency,
taxpayers are obliged to apply the mechanism of divided payment.
The taxpayer obliged to issue an invoice with the annotation ‘split payment mechanism’ must accept payment in the amount of the amount due resulting from this document using this mechanism. The application of split payment is closely linked to the obligation to have a VAT settlement account for the purposes of split payment.
It is worth knowing what obligations are associated with the use of the split payment mechanism. Should you have any doubts regarding this or any other VAT issue – the specialists at Nexia Advicero will be happy to support you.
