The provision of remote services has become increasingly popular in recent years. However, when the issue of cross-border provision of such services arises, the question arises – in which country will these services be taxed? This was the question addressed to the tax authority by a attorney-at-law who wanted to ascertain whether her income, as a person conducting business activity registered in Poland and performing services remotely from the territory of Switzerland for a Polish client, should be taxed in Switzerland or in Poland?
In an individual interpretation of 3 September 2024 (mark: 0112-KDIL2-2.4011.487.2024.2.IM), the Director of the National Tax Information (hereinafter: ‘DNTI’) explained where they would be taxed.
Factual situation
The applicant explained that she carries out her business as an independent attorney-at-law. She has one client for whom she provides legal advice. She provides these services remotely from Switzerland. She contacts the client electronically and by telephone and communicates the results of her work and receives further orders in this way. Although she rents an office in Poland (registered address), she does not currently conduct business through it. For several months, she has moved the centre of her life interests to Switzerland, where she lives and works together with her spouse. Importantly, it was only in Poland that the applicant had her business registered, owned a flat as well as her parents and other family living here. Family ties, other than marriage ties, were therefore realised in Poland.
Other ties were realised by the applicant in Switzerland. This was the centre of her daily life. She and her husband rented a flat in Switzerland for an indefinite period of time, and they both participated in social, cultural and sporting life in Switzerland. The intention of the spouses was to remain in Switzerland.
Due to the fact that the applicant is registered in Poland and provides services exclusively to a Polish client, she believes that, as a freelancer, she has a permanent establishment in Poland and should also be taxed here.
Tax authority’s position
The DNTI did not share the applicant’s view with regard to the income earned as a freelancer through a permanent establishment, but otherwise agreed with her position. The tax authority held that the activity conducted in this manner results in the establishment in the territory of the Republic of Poland, pursuant to Article 5(1) of the Polish-Swiss Convention on the Avoidance of Double Taxation[1] (hereinafter: ‘DTT’).
A permanent establishment within the meaning of the DTT is considered to be a establishment through which the business of an enterprise is wholly or partly carried out. The tax authority rejected the application of the regulation under Article 14 of the DTT concerning the freelance jobs, as it considered that the income obtained from the activity in Poland constitutes business profits obtained through a permanent establishment. It argued this on the grounds that, according to Article 7(1) of the DTT, such profits are taxable in the territory of the state where the permanent establishment is located. Profits can only be taxed in that State to the extent that they can be attributed to that permanent establishment. The applicant’s income, as a business person registered in Poland and performing services remotely from Switzerland only for a Polish client, should therefore be taxed in Poland.
The position of DNTI expressed in this interpretation should be considered correct. Recognition of the establishment in the territory of the Republic of Poland results in the taxation of income earned through it only in that country.
Summary
If you have any doubts about cross-border service provision, it is worth applying for an individual interpretation. However, it should be borne in mind that in similar cases, one cannot limit oneself only to an interpretation from the Polish perspective, as the other country concerned may come to different conclusions as to the tax residence of a given person. In such a case, it is particularly important to seek the assistance of an adviser who is competent and has contacts with advisers from different countries. At Nexia Advicero, due to our membership in the Nexia international network of advisory firms, we provide our clients with a comprehensive service, also from an international and local perspective in different countries.
[1] Convention between the Republic of Poland and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, done at Bern on 2 September 1991 (Journal of Laws of 1993, No. 22, item 92, as amended).