Comments for companies in Poland with international shareholding structure

Publication date: October 10, 2024

Lack of facilities in Poland and deduction of VAT – views of Polish tax authorities

There are a number of companies being established in Poland with foreign shareholding structure. In this respect, the conditions that must be met by entities in order to be able to develop their business are important. This is particularly important in the context of the company’s background and the deduction of VAT, in accordance with the applicable Act on the tax on goods and services. In Poland, more and more judgments of the Supreme Administrative Court are being issued, which indicate the need to have an appropriate background in a given company.

Permanent place of business

First of all, it should be noted that if a person is registered as an active VAT payer and the goods and services from which they want to deduct VAT are related to the activities performed by them in their business, then in accordance with art. 86 of the Act of 11 March 2004 on the tax on goods and services (unified text: Journal of Laws of 2024, item 361), the entity is then entitled to deduct VAT. In this context, it is important to have appropriate facilities in the company to be able to prove the actual conduct of business. It is important to have a permanent place of business, which will be characterized by appropriate technical facilities (e.g. office equipment, machines) and personnel (e.g. employees), which will allow for the appropriate provision of services and the reception of foreign contractors.

It is particularly worth taking a closer look at the Act of 11 March 2004 on the Goods and Services Tax (Journal of Laws of 2024, item 361), in which Art. 28b paragraph 2 indicates that “the place of supply of services in the case of services provided to a taxpayer is the place where the taxpayer who is the recipient of the services has its registered office”. This clearly shows that in the case of services provided for the taxpayer’s permanent place of business, which is located in a place other than the registered office, the place of supply of these services is the permanent place of business. The principle indicated in the regulations states that services should be taxed in the country where the permanent place of business is located. The concept of “fixed place of business” has not been defined in any way in Polish regulations. In this case, it is worth focusing on the EU Council Regulation (EU) 282/2011 of 15 March 2011, which in Art. 11 indicates that “a permanent place of business is any place other than the taxpayer’s registered office, which is characterised by sufficient permanence and appropriate human and technical resources to enable the receipt and use of services provided for the needs of that permanent place.”

The position of the ECJ

In this case, attention should also be paid to the opinions of the Court of Justice of the European Union. Here, the CJEU in its judgment of 2 May 1996, Berkholz, C-231/94, noted that “the deck of a ship on which self-service gaming machines are installed, which are not operated by any staff during the voyage, is not a permanent place of business”. Another important judgment in this case is the judgment of 7 July 1997, ARO Lease BV, C-231/94, EU.C.1997:374, in which the CJEU emphasized “the place where the service is actually performed is not a permanent place of business, provided that there is no material structure (such as an office) and the service provider’s staff are not present there”. In both judgments, the Court clearly emphasizes that a registered office that does not have the technical and personnel resources and does not demonstrate any organizational structure that would enable the provision of services cannot be considered a permanent place of business.

The argumentation of the Polish Supreme Administrative Court

In this respect, several case law has already been established in Poland regarding the conditions of VAT taxation. It is worth taking a closer look at the individual arguments of the Courts:

1. Judgment of the Supreme Administrative Court of 19/05/2022, I FSK 968/20, ONSAiWSA 2023, No. 1, item 11. – the court in this judgment argues that if a company does not have an appropriate background, a foreign entity cannot be considered to have a permanent place of business in Poland, which excludes its services from taxation in the country. It also indicates that the task of tax authorities is to appropriately verify the existence of appropriate infrastructure, which is the basis for taxing foreign activities in Poland.
2. Judgment of the Supreme Administrative Court of 19 April 2023, I FSK 506/20, LEX No. 3582241. – in this judgment, the Supreme Administrative Court indicates that a foreign service recipient cannot be considered a “permanent place of business” if both the personnel and technical resources provided to a foreign company by a domestic company are used simultaneously to provide these services. This means that the resources should be used exclusively for the benefit of the foreign company.
3. Judgment of the Supreme Administrative Court of 18 January 2023 , I FSK 797/19, LEX No. 3521549 – in the case of this case law, the court also indicates the need to have a separate facility in order to recognize such a place as a permanent place of business.
4. Judgment of the Supreme Administrative Court of 11 October 2022, I FSK 396/21, LEX no. 3508690 – the judgment of the Supreme Administrative Court indicates that a permanent place of business does not require having facilities, but it is important that the taxpayer has a comparable influence on the staff and facilities.