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Welcome to the next issue of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.

On 11 October 2023, the Organization for Economic Co-operation and Development (OECD) released the text of a new multilateral convention to Implement Amount A of BEPS Pillar One. Its goal is to:

  • co-ordinate a reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence
  • prevent the proliferation of digital services taxes
  • secure mechanisms to avoid double taxation
  • enhance stability and certainty in the international tax system.

OECD is also making good progress on Pillar Two. With the opening for signature of the multilateral instrument to implement the Subject to Tax Rule (STTR), the work on the STTR is now largely complete. 

New electronic templates for TP reporting were made available by the Ministry of Finance on the Public Information Bulletin website, namely:

  • Personal income tax transfer pricing report – TPR-P(5)
  • Corporate income tax transfer pricing report – TPR- C(5).

The templates are used for reporting transfer pricing (submitting TPR Information) for taxable years starting after 31 December 2021. Submitting TPR Information via e-Returns gate using the newly published templates is possible from 13 October 2023. Moreover, interactive transfer pricing Information forms will be made available in the near future.

On 10 October 2023, the Supreme Administrative Court delivered a judgment in joint cases III FSK 3235/21 and III FSK 3236/21 regarding the grounds for denying an individual ruling under Article 14b § 5b of the Polish Tax Code. According to the Court, pursuant to Article 14b § 5b of the Tax Code, existence of a justified suspicion that 119a § 1 thereof, regarding the rules of tax liability in the scope of the application of the anti-avoidance clause, may apply is enough to deny an individual ruling. The applicant may apply for a clearance opinion instead.

On 11 October 2023, the Supreme Administrative Court delivered judgment in case II FSK 326/21, relating to the possibility to treat as tax-deductible the costs of food and other performances for individuals working with the company on a different basis than employment contract. Performances are rendered to such individuals while they perform their ongoing "official" duties and during meetings, including conferences, training sessions, or meetings with the company's contractors. According to the Court, the legal status of the company’s employees must be differentiated from the status of non-employees providing services to the company as part of their business activity. The costs of providing refreshments to individuals who are not employed by the company cannot be treated as tax-deductible, since, eventually, such activities encourage the collaborators to better run their own business and not the business of the company.

On 05 October 2023, the Supreme Administrative Court rendered judgment in case II FSK 870/22, regarding the conditions for treating an activity as research and development. According to the Court, the criteria that distinguish R&D from other activities are creativity, regularity, increasing knowledge resources and using it to make up new applications. In the analysed case, all of the criteria above have been met. Creativity manifests itself in the fact that the company uses pieces of code acquired from professionals to create a complete source code being the basis of a program. Regular activity, in the first place, mean activity run in a systematic, planned, and organized manner. Importantly, the company has also met the last condition, as it uses knowledge resources to develop new, innovative, and copyrighted software. The fact that the company is not a co-owner of IP rights does not, in any way, hamper the possibility to apply the reduced CIT rate of 5% to eligible income from qualified intellectual property rights.

In its judgment dated 05 October 2023, case file II FSK 758/21, the Supreme Administrative Court held that only assets that were actually received could be qualified under a source of revenue. According to the Court, at the time of allocation of financial instruments, revenue is only potential, but may be realized in the future, i.e., at the time the participation units are redeemed or repurchased by the society. Thus, revenue from exercised participation units allocated as part of remuneration for work, in line with Article 12(1) of the PIT Act, must be qualified as revenue from employment relationship.

In its judgment dated 10 October 2023, case file I SA/Wr 261/23, the Regional Administrative Court in Wrocław, after analysing the facts of the case, held that a sole proprietorship run by a Ukrainian citizen in Poland cannot be treated as a taxable permanent establishment. Renting an apartment, hotel room or even owning programming tools cannot be considered as running a permanent establishment. In fact, the nature of the activities itself indicated that there was no need to keep an establishment in Poland. The decision was also influenced by the lack of the sole proprietorship’s economic ties with Poland.

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