Ruling description

In its judgment of May 8, 2014 (case no. III SA/Wa 3182/13), the Administrative Court (WSA) in Warsaw found that non-residents may be taxed pursuant to Art. 3 Sec. 2a of the PIT Act provided they earn the income in the territory of the Republic of Poland (income earned from activities carried out in Poland) or if they receive payment for their services in Poland.

A Polish company hired a foreigner (non-resident for tax purposes in Poland) to run an exhibition stand at a trade fair in Germany. This person was a German tax resident and rendered the service on German territory. He did not provide a tax residency certificate to the company. The company’s position was that it did not have to retain withholding tax from the remuneration paid to the said foreigner since this person was not liable to taxation in Poland.

Pursuant to Art. 3 Sec. 2a of the PIT Act, taxpayers who  do not have their registered office or whose management board is not based in Poland are liable to taxation only as regards the income/revenue earned in Poland  (limited tax liability). The Court had to consider whether the non-resident earned income/revenue in Poland and whether the company should have withheld tax from the remuneration due to this person.

The Minister of Finance decided that since the company (the entity paying the remuneration) had its registered office in Poland, the income/revenue earned by the non-resident must be seen as earned in Poland and that, therefore, the company should have withheld tax. The WSA disagreed with the Minister, arguing that taxation of income/revenue earned by non-residents pursuant to Art. 3 Sec. 2a of the PIT Act is conditional on this income/ revenue being earned in Poland (as a result of actions carried out in Poland or if payment for these services is made in Poland), and that this regulation does not refer to situations when income/revenue is financed from Poland. To claim that income/revenue is earned in Poland when payment is made in another country and when the work being paid for was carried out in that other country would be to contradict the linguistic interpretation of the regulation in question.


Essentially, one must agree with the WSA’s position.  The process of ordering and rendering services consists of several stages: service order placement, performance of the service, payment for the service and utilization of the service. Of these, just the stage of service performance has relevance in determinations of the place where income/revenue was earned, given that “earning income/revenue” is dependent exclusively on the actions of the service provider. It is just the entity rendering the service that may be “earning income/ revenue” and neither the status of the service buyer, or the place where the service is made use of or the place where payment for the service is made is of any relevance in assessments of the manner and place of earning income/revenue by the service provider. It thus makes sense to say that limited tax liability arises only when the given service is actually (physically) rendered in Poland.

Nevertheless, the Ministry of Finance continues to stick to its interpretation whereby withholding tax must be retained regardless of where the foreign business partner rendered its service despite the administrative courts repeatedly challenging it. This latest judgment is yet another example of the sound attitude adopted by these courts. The judgments they hand down confirm that payers do not have to obtain tax residency certificates from their business partners rendering services outside Poland, and also enable payers to recover the withholding tax they retained groundlessly in cases when services were rendered to them abroad.