Withholding tax and advertising services from a foreign contractor
The Income Tax Act provides for a situation where, due to the provision of certain services by foreign entities, the Polish taxpayer is obliged to collect and pay the tax. Such cases are referred to as withholding tax deduction. The catalog of activities in which the withholding tax arises includes, among others: advertising services provided by a foreign contractor.
Taxation of non-residents
Pursuant to the principle of territoriality expressed in tax laws, natural persons or legal persons, if they do not have a place of residence in the territory of the Republic of Poland, are subject to tax liability only on income (revenue) generated in the territory of the Republic of Poland. This is called limited tax liability.
As a rule, income tax on revenues obtained in the territory of Poland by non-residents from intangible benefits and services listed in the catalog indicated in the tax laws, including advertising services, is collected in the form of a lump sum in the amount of 20% of income.
In the light of the provisions of the Act, the obligation to collect and then tax is imposed on the Polish contractor who uses the advertising services of a foreign entity and pays him the receivables on this account.
Doubts about the place of performance
It should be pointed out that there has long been a dispute in the doctrine as to the correct classification of the place where intangible and legal services are provided. Doubts arose when a Polish entrepreneur paid a foreign taxpayer for services performed outside Poland.
In such circumstances, the tax office took the position that the source of the non-resident's income would be located in the territory of Poland, as the effect of the service would be used by the taxpayer who was domiciled in the territory of the country. Consequently, the income should be taxed as withholding tax, i.e. in Poland (Director of the Tax Chamber in Katowice in the individual ruling of February 1, 2016, No.IBPB-1-3 / 4510-671 / 15 / SK).
A different opinion in this matter was presented by administrative courts, which stated in their judgments that a limited tax obligation of a non-resident cannot be linked to obtaining income from a contractor, which is a Polish company, on the basis of a contract for the provision of services, the performance of which is not related to the territory of Poland. The term "territory with which income is generated" should be understood as the place where activities aimed at generating income are actually undertaken (judgment of the Supreme Administrative Court of 7 July 2016, II FSK 254/16).
The above dispute was resolved by the legislator, which, as a result of the amendment to tax acts, introduced a regulation according to which the income (revenues) achieved in the territory of Poland by non-residents will be considered receivables paid by natural persons, legal persons or organizational units without legal personality, residing , headquarters or management board in Poland - regardless of the place of conclusion of the contract and performance of the service.
If the entity paying the amount is required to calculate and collect the withholding tax, it performs the function of the payer. Therefore, he is obliged to calculate the tax at the appropriate rate. The amount of tax should be deducted (deducted) by the payer from the amount paid, so the amount actually paid to the non-resident should be lower by the amount of withholding tax. If the tax burden is to be borne by the entity paying the debt, it is necessary to gross up the amount due to the non-resident.
For the advertising service provided by the entity from France, the Polish taxpayer should pay remuneration in the amount of PLN 45,000. The tax rate for advertising services is 20%. Therefore, the Polish taxpayer withholds tax in the amount of PLN 9,000 (45,000 x 20%). The amount due to the contractor from France is therefore PLN 36,000.
The tax collected should be paid to the tax office managed by the head of the tax office competent according to the place of residence or seat of the payer, i.e.the entity paying the withholding tax receivable. The deadline for paying the withholding tax to the tax office depends on the tax status of the counterparty. In the case of a taxpayer who is a legal person, the seventh day expires, and in the case of a natural person, the twentieth day of the month following the month in which the tax was collected.
Taxpayers who collected withholding tax during the tax year are obliged to prepare an annual declaration after its end. To the extent that the collected "withholding" tax is income tax from natural persons, a PIT-8AR declaration is submitted, while if the tax is a corporate income tax, a CIT-10Z declaration is submitted.
The PIT-8AR declaration should be sent to the tax office, which is directed by the head of the tax office competent according to the place of residence or the seat of the payer. As for the CIT-10Z declaration, it should be sent to the tax office, which is directed by the head of the tax office competent for the foreign taxpayer (the head of the tax office competent for taxation of foreign persons).
The last obligation related to the collection of withholding tax is the obligation to prepare IFT information, i.e. information on the amount of income (income) obtained in Poland by a non-resident
IFT-1 / IFT-1R and IFT-2 / IFT-2R information is sent to non-residents and tax offices managed by the heads of tax offices competent for taxation of foreign persons. This information is not sent to the tax offices managed by the heads of tax offices with jurisdiction over the place of residence or the seat of the payer.
Agreements on the avoidance of double taxation
The provisions of agreements on the avoidance of double taxation may also affect the principles of taxation of withholding tax. Agreements can interact in two ways. First, the contract may exclude the obligation to collect this tax. Secondly, the wording of the double taxation avoidance agreement may allow for the collection of withholding tax at a rate lower than the standard rate.
The possibility of using the preferences depends on the fulfillment of two conditions:
- a double taxation avoidance agreement concluded with a non-resident country provides for a complete exemption or a lower tax rate for a given type of income,
- the non-resident will prove the possession of the place of residence or the seat for tax purposes in this country by means of a certificate of residence.
It should be noted that even despite the application of the exemption from withholding tax by the Polish taxpayer, it is still obliged to prepare and send the IFT-1 / 1R and IFT-2 / 2R information.