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Archive for: Polish Act on Personal Income Tax

Tax law, case I SA/Łd 657/12

August 2nd, 2012, Tomasz Rychlicki

The Voivodeship Administrative Court in Łódź in its judgment of 29 June 2012 case file I SA/Łd 657/12 held that the agreement that provides the website to use for advertisers is deemed as the unnamed contract and is similar in its provisions to a contract of tenancy as defined in the Article 693 of the Civil Code – CC – (in Polish: Kodeks Cywilny) of 23 April 1964, published in Journal of Laws (Dziennik Ustaw) No. 16, item 93, with subsequent amendments.

Article 693. § 1. By a contract of tenancy, the landlord shall assume the obligation to give a thing to the tenant for use and the collection of fruits for definite or indefinite time, and the tenant shall assume the obligation to pay to the landlord the rent agreed upon.

The Court decided that the income from advertising should be taxed like tenancy contracts or leases, which allows a taxpayer to choose a lump sum settlement on registered revenues.

Tax law, case I SA/Ol 270/11

September 24th, 2011, Tomasz Rychlicki

The Director of a Tax office decided that a person who led undeclared but taxable economic activity is subject to VAT. This decision was based on the basis of bank statements and information provided by the auction website Allegro. The amount of the tax obligation was set out in the amount of tax due, without reduction of input tax, because the tax payer did not submit any invoices that would serve as evidence of purchase of the goods that were later resold via Allegro.

The Voivodeship Administrative Court in Olsztyn in its judgment of 29 June 2011 case file I SA/Ol 270/11 held that a person who conducts business activities that were undeclared to tax, has the right to deduct the input VAT due, but such person must have the purchase invoices, because without them, the tax authorities are unable to verify the prices of the goods resold.

Tax law, case III SA/Wa 25/10

July 7th, 2010, Tomasz Rychlicki

The Voivodeship Administrative Court (VAC) in Warsaw in its judgment of 5 July 2010 case file III SA/Wa 25/10 confirmed the interpretation that contracts based on providing access to websites for displaying ads should be deemed as the lease of such a website. That’s the most favorable interpretation from the perspective of the website owner and the advertising company. The first can choose a lump sum and pay 8.5% tax regardless of income. The company is not required to act as a withholding agent, who is obliged to collect withholding income tax.

See also “Tax law, case I SA/Kr 60/10“.

Tax law, case I SA/Kr 60/10

April 7th, 2010, Tomasz Rychlicki

The Polish company which provides advertising services that are based on placing advertising banners on Internet websites requested the Minister of Finance to issue an individual interpretation of tax law. The company rents websites from individuals and companies for remuneration. Banner ads are placed on rented websites by using a computer software owned by the company. The owners of rented websites were required at the start of cooperation only to do a single interference/change in the code in order to make space on their websites for ads placed by the Company. This moment was treated as a commitment by the parties to the lease agreement and such a website was subject to use and benefits/usufruct. The owners of websites were not required to render to the Company (or its customers) any other additional steps. The company receives payments from its advertisers/customers according to the agreement, i.e. periodicaly for example monthly or once after the ad campaign ended.

The company asked whether income from remuneration for the lease obtained by individuals (private persons) who were not doing any business activity in this field, must be considered to sources mentioned in article 10(1) pt 6 of the Polish Act on Personal Income Tax – PITA – (in Polish: ustawa o podatku dochodowym od osób fizycznych) of 26 July 1991, Journal of Laws (Dziennik Ustaw) No. 80, item 350, with later amendments.

Article 10.
1. The sources of revenues shall include:
6) letting, subletting, lease, sublease and similar contracts, including also lease, sublease of special sectors of agricultural production and agricultural undertakings or parts thereof for non-agricultural purposes or for running special sectors of agricultural production, with the exception of assets used for commercial activities;

The company wanted to know whether it should be also acting as withholding agent, who is obliged to collect withholding income tax. The company argued that according to article 10(1) pt 6 and 44(1) pt 2 of the PITA it is not its duty. The Director of the Tax Chamber, acting under the authority of the Minister of Finance, held the position of the Company to be invalid. The Director and the Minister of Finance held that every time there was a service contract concluded between the company and the owners of websites and not the lease agreement, because the owner should be regarded as a person cooperating with the Company based on the fact that they have been required to comply with personal activities, i.e. one-time intervention in the code of a website, so that ads can appear on their website. Their revenues shall be defined as in article 10(1) pt 1 of the PITA.

Article 10.
1. The sources of revenues shall include:
1) service relationship, employment relationship, including cooperative employment relationship, farming or other agricultural production cooperative, homework, retirement or disability pension;

The company appealed. The Voivodeship Administrative Court (VAC) in Kraków in its judgment of 5 March 2010 case file I SA/Kr 60/10 held that a website is not either the tangible object/property or the right. It cannot therefore be subject to a lease within the meaning of the Polish Civil Code. However, according to the principle of contractual freedom, as the company correctly pointed out, it would be acceptable to conclude the so-called unnamed contract, which would be similar to the standard lease contract as provided by the regulations included in the Civil Code. The changes made in HTML code were just the technical operation.

See also “Tax law, case ILPB2/415-679/08-2/AJ“

Tax law and Internet, case I SA/Gd 17/10

April 7th, 2010, Tomasz Rychlicki

On 3 March 2009, a Polish citizen (P.W.) requested the Minister of Finance to provide a written interpretation of tax law on individual case concerning personal income tax with regard to taxation of interest on loans granted over the Internet. P.W. wanted to use an online social lending website, which activity is based on associating individuals who want to take out a loan or to grant one. Loan agreements are concluded directly between the lender and the borrower by making a declaration of will in the electronic form.

P.W. had asked whether lending money to individuals through a social lending site will be an economic activity within the meaning of article 5a pt 6 of the Polish Act on Personal Income Tax – PITA – (in Polish: ustawa o podatku dochodowym od osób fizycznych) of 26 July 1991, Journal of Laws (Dziennik Ustaw) No. 80, item 350, with later amendments.

6) non-agricultural commercial activities – it shall mean profit oriented, organized and continuing activities, run in one’s own name and on own or another person’s account, the revenues from which are not included in other revenues from the sources listed in Article 10.1 subparagraphs 1, 2 and 4-9;

P.W. argued that his activities do not have all the above mentioned characteristics, and therefore such project will not constitute an economic activity within the meaning of the PITA. P.W. argued that the use of office equipment which is necessary for granting a loan by the use of the online social lending website does not imply the organized nature of such activity. He drew attention to the fact that having own devices is not necessary for carrying out such activities, since these activities may also be performed in Internet cafe or by the use of a third party equipment. The existence of the terms of service provided by the website does not prove the organized nature of lending activities either. P.W. also noted that his activities would not be a continuous process, because the loans will be sporadic, depending on the currently available resources.

On 21 May 2009, the Minister of Finance issued a personal interpretation, in which it ruled the taxpayer’s position as incorrect and held that activities related to lending money that are conducted through the Internet via a social lending website are deemed as non-agricultural commercial activities. According to the Minister of Finance these activities are taken to profit on its own behalf and on its own interest. Such loans are given in an organized manner, i.e., to be able to make loans the applicant must be subject to rules (TOS) set by the system, it must have computer equipment and Internet access. The fact that loans are to be given once a month, proves that these are not sporadic or one-time events and in consequence argues for recognition of the continuous nature of such actions.

P.W. did not agree with such interpretation and filed a complaint to the Voivodeship Administrative Court (VAC) in Gdańsk. The VAC in a judgment of 9 March 2010, case file I SA/Gd 17/10 rejected the complaint and upheld the interpretation of the Minister of Finance.

Trade marks and taxes, case IPPB1/415-288/09-2/AG

March 12th, 2010, Tomasz Rychlicki

A Polish taxpayer being also an entrepreneur has requested the Director of the Tax Chamber in Warsaw to issue an interpretation to a question whether by contributing a trade mark to a general partnership (ordinary partnership), he would receive a revenue that is subject to personal tax income. The right of protection for a trademark was granted by the Polish Patent Office. The taxpayer received revenue from licensing the use of that trade mark. However, he decided to form a general partnership, to which he wanted to make a contribution in a trade mark, based on its market value. The partnership would treat such trade mark as a legal and intangible asset and would make it available to other entities under a license agreement. The entrepreneur was also considering the possibility to sale his right of protection for the trade mark to another entity if the general partnership would not count it as the intangible asset.

He argued that making a contribution to a partnership, such as general or ordinary one (these are not having a status of a legal person), is not a source of revenue in personal income tax. His opinion was based on provisions of article 17(1) pt. 9 of the Polish Act of 26 July 1991 on Personal Income Tax – PITA – (in Polish: ustawa o podatku dochodowym od osób fizycznych), published in Journal of Laws (Dziennik Ustaw) No. 80, item 350, with subsequent amendments

Revenues from financial capital shall be:
9) par value of shares (stocks) of an incorporated company or shares of a cooperative societ received in exchange for a non-financial contribution;

The Director of the Tax Chamber in Warsaw in the interpretation of 25 June 2009, no. IPPB1/415-288/09-2/AG, concluded that the contribution of a trade mark to a general partnership is considered as a sale. The value of a trade mark that was established in the partnership contract serves as a basis to set the revenue from financial capital. Therefore, according to article 14(2) pt. 1 of the PITA it is a revenue from commercial activity of a contributing person. The Director of the Tax Chamber referred to article. 4 § 1 of the Code of Commercial Companies, under which the general partnership is a partnership, which may on its own behalf acquire the rights, including real property and other property rights, to incur obligations, may sue and to be sued – it has legal capacity but not the legal personality (a private company not an incorporated one). A non-financial contribution causes a transfer the ownership of things or rights to a general partnership because the capital share of the partner shall equal the value of the contribution effectively made. From the viewpoint of the civil law regulations, it is a payable sale of things or rights. Because the general partnership has no legal personality separate from its partners, therefore is not subject to personal tax income. Only partners are subject to personal tax income in such case.

See also “Trade marks and taxes, case II FSK 1003/08” and “Trade mark law, I SA/Rz 249/09“.

Tax law and Internet, case III SA/Wa 1013/09

January 7th, 2010, Tomasz Rychlicki

On 24 November 2008, a Polish citizen (P.C.) requested the Minister of Finance to provide a written interpretation of tax law on individual case concerning personal income tax with regard to taxation of interest on loans granted over the Internet.

The system which is available at kokos.pl website allows for contacting people who need loans (the borrower – PB), with people who have the means to lend (the lender – PD). PB initiates a transaction by providing information on how much he or she wants to borrow, the period of repayment and interest. It is called an “auction” but there is no bidding at all. PD makes offer in the “auction” by making payments to kokos.pl website with an indication of the “auction”. The payment made by each user (PD) cannot exceed 500 PLN. If the “action” is finalized the system generates a series of electronic contracts (PB with each PD) and transfers all the payments made by the PDs to PB. Then PB pays a monthly installment loan to kokos.pl website, and the site distribute money between the accounts of all PD. The monthly payment is an adequate of a received share capital and it is increased by fixed interest. The sole income of PD is the interest rate determined by the PB while setting up the “auction”.

The Voivodeship Administrative Court (VAC) in Warsaw in a judgment of 29 October 2009, case file III SA/Wa 1013/09 ruled that P.C. receives income from interest on loans. This interpretation was based on articles 10(7) and 17(1) pt. 1 of the Polish Act on Personal Income Tax – PITA – (in Polish: ustawa o podatku dochodowym od osób fizycznych) of 26 July 1991, Journal of Laws (Dziennik Ustaw) No. 80, item 350, with later amendments.

Article 10. 1. The sources of revenues shall include:
7) financial investments and property rights, including selling property rights other than those referred to in subparagraph 8 letters (a)-(c),
(…)
Article 17. 1. Revenues from financial capital shall be:
1) interest on loans;

This means that the income should be classified as another source of income than non-agricultural economic activities. Consequently, even if it would be recognized that the P.C. grants loans using the site kokos.pl in an organized and continuing manner, this activity could not be deemed as non-agricultural commercial activities as defined in article 5a(6) of the PITA.

See also “Tax law and Internet, case I SA/Gd 17/10“.

Tax law, case I SA/Op 239/08

May 28th, 2009, Tomasz Rychlicki

The Voivodeship Administrative Court in Opole in its judgment of 4 March 2009, case file I SA/Op 239/08 ruled that when performing commercial transactions over the Internet in an organized and continuous manner, the taxpayer shall register such business and pay the taxes by virtue of performing such activity. Conducting a business with the use of internet networks is associated with the same tax obligations as operating business in the traditional manner, which includes, in particular the pursuit of tax revenue and expenditure accounts in such a way as to determine the income (loss), the tax base and amount of tax due for the fiscal/tax year.