Ruling description

In its judgment of February 26, 2015 (case file no. II FSK 3296/12) the Supreme Administrative Court (NSA) found that withholding tax must be levied on license fee payments when the fees receivable under the license are contributed in kind to a limited liability company triggering the expiry of receivables due to confusio.

A Swedish company was considering an in-kind contribution to a Polish company of trademark and publishing license fees due to it from the Polish company. This in-kind contribution would trigger, by operation of the law, what is known as confusio, which arises when one and the same entity assumes both the creditor’s right to receive licensing fees and the debtor’s obligation to pay them.

The NSA disagreed with the company’s position and dismissed the last resort (cassation) appeal filed by it. According to the NSA, the court of first instance correctly found that confusio arose in the case when the in-kind contribution was made and a shareholding stake in the company was handed over in return. The company wrongly assumed that this situation caused its obligation to pay the license fee to expire without the creditor’s claim having been satisfied. As a result of this transaction, the Swedish company received a stake in the Polish company in return for the licensing fees, resulting in the expiry of these receivables. The NSA held that Article 26(7) of the CIT Act allows an obligation to be fulfilled in a wide variety of ways with the payment referred to in this regulation meaning the fulfillment of the obligation in any form, including payment, set-off or capitalization of interest. The NSA decided that the  situation described in that case falls within the broad scope of the said regulation and also within the scope of the relevant double taxation treaty made between Poland and Sweden.

As a result, according to the NSA, the company is required to levy withholding tax on the licensing fees paid in the described manner.


The reviewed judgment serves to confirm the broad range of the concept of ‘payment’ of amounts due which may be subject to withholding tax in Poland. Confusio, when the roles of creditor and debtor reside in one and the same person, is one of the ways of causing the expiry of receivables which the court found to be equivalent to actual payment or set-off of amounts due referred to in Article 26(7) of the CIT Act.

Although the reviewed judgment concerns a case of confusio of license fees, it must also be seen as relevant in cases involving other payments subject to withholding tax, including in particular payments of interest accrued on loans. What this means is that withholding tax must be levied on, for example, debt-to-equity swaps through in-kind contributions of loans receivables towards the debtor’s capital. The position taken by the NSA naturally implies that interest of this kind (‘paid’ through confusio) may, in principle, be deemed a tax expense for the debtor.