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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“.

Trade mark law, I SA/Rz 249/09

July 24th, 2009, Tomasz Rychlicki

Financial issues relating to trade marks are not a frequent subject matter that is discussed on my website, therefore I decided to write a short post regarding that topic. The assembly of shareholders of a Polish company (spółka z ograniczoną odpowiedzialnością – a legal concept similar to the limited company), following a resolution, decided to increase the company’s share capital by the creation of new shares. The new shares were covered by the shareholders in the form of an enterprise (the enterprise as as a subject of rights). One of the components of the enterprise was a trade mark valued at 750,000 PLN (around 179,016,307 Euros). The trade mark was entered in the company’s books in 2000 and the company started depreciating this asset in 2001 based on the provisions of article 16b(1)(6) of the Polish Act of 15 February 1992 on the Legal Entities’ Income Tax – LEIT – (in Polish: Ustawa o podatku dochodowym od osób prawnych) consolidated text published in Journal of Laws (Dziennik Ustaw) of 2000, No. 54, item 654 with subsequent amendments.

The following intangible assets, acquired and fit for commercial use as at the date of acceptance for use, shall be depreciated, subject to Article 16c:
(6) rights to: inventions, patents, trade marks, designs;

This action was called into question by the Director of the Tax Office, who duly imposed tax (19,006 PLN for year 2002). The company appealed against this decision to the Director of the Tax Revenue Audit Office, but it was upheld. The findings made in the course of the investigation showed that, both in 2002 and in an earlier period of time, the sign in question had not been granted the right of protection, having been applied for at the Polish Patent Office on 8 November 2000.

The company filed a complaint to the Voivodeship Administrative Court (VAC) in Rzeszów. The VAC, in a judgment of 21 May 2009, case file I SA/Rz 249/09, ruled that provisions of the LEIT allow only for the depreciation of the registered trade mark, since mere priority (the right of priority) to obtain a right of protection for a trade mark is not the right which is explicitly mentioned in article 16(1) of the LEIT. The Court emphasized the fact that the acquisition of rights to a trade mark occurs within the system of constitutive registration, the law-creating nature of which is attributed to “an act of registration” made by the Polish Patent Office in the form of the administrative decision. The only exception to this rule is the acquisition of rights to well-known trade marks, the protection of which does not depend on the registration – but it was not the issue of this case.

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.

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

May 21st, 2009, Tomasz Rychlicki

Polish citizen bought domain names under which she has established website where the company from United States placed some ads. The owner of the mentioned website receives payments from the US company via PayPal or bank account several times a year. She does not have any invoices or bills. She is not an entrepreneur nor she is providing any online advertising business. The Polish newspaper Rzeczpospolita published an article titled “Jaki PIT od wynajęcia internetowej witryny pod reklamy“, which loosely translates as “What tax for renting website for online advertising” with a question, how and where should such person pay taxes.

According to interpretations issued by the Tax Chamber in Poznań of 13 January 2009 (ILPB2/415-679/08-2/AJ) and the interpretation by the Tax Chamber in Bydgoszcz of 17 March 2008 (ITPB1/415-797/07/PS), the income which is derived from activities performed “in person” for the US company, should be taxed only in the Republic of Poland.

Categories: domain names | e-adverstising | e-law issues | Polish law | tax law.

Tax law, case file PO/005-1/06

May 21st, 2006, Tomasz Rychlicki

The Tax Office in Tarnowskie Góry in its decision of 10 February 2006 case file PO/005-1/06 ruled that unconditional sharing for free of a computer program to unlimited recipients is not a civil law act, and donations send by users of such program to its creators, are not a form of payment for the use of the program. There is therefore no legal relationship between the creators of the program and its users and there is no transfer of any rights by the creator to the user, and therefore this form of activity is not subject to tax on civil law transactions.

Categories: case law | free or libre and open source software | Tax Chamber | tax law | Tax Office.

Tax law, case file PB3/GM-8213-12/06/144

May 21st, 2006, Tomasz Rychlicki

In the letter of 10 March 2006, file PB3/GM-8213-12/06/144, published in Biuletyn Skarbowy of 2006, no 2, pp. 21-22, the Undersecretary of State of the Ministry of Finance gave the official interpretation regarding tax consequences associated with the use of free software programs, addressed to the Directors of all the Tax Offices and Chambers. This letter was issued in order to ensure uniform application of the law under article 14 § 1 point 2 of the Tax Code, to convey an explanation of article 12(1) point 2 of the Polish Act of 15 February 1992 on the Legal Entities’ Income Tax – LEIT – (in Polish: Ustawa o podatku dochodowym od osób prawnych) consolidated text published in Journal of Laws (Dziennik Ustaw) of 2000, No. 54, item 654 with subsequent amendments, on the tax consequences associated with the use of free software.

Art. 12. [General notion of revenue] 1. Revenues, subject to paragraphs 3 and 4 and Articles 13 and 14, shall be, in particular:
2) the value of things or rights received free of charge or partially free of charge, as well as the value of other free-of-charge or partially free-of-charge performances, with the exception of performances linked with utilization of fixed assets received by budgetary establishments, subsidiary undertakings of budgetary entities, public utility companies 100% owned by local government bodies or their associations from the State Treasury, local government units or their association for gratuitous management or use;

In many cases during the economic activity, taxpayers benefit for purposes of the activities of the publicly available and free of charge computer programs that are available for instance via the Internet for all users. Although most of the software for these operating systems is free, however there are exceptions in the form of commercial software. The rule, however, is that the use of such programs are not related to any fees for their purchase, or license fees.

Provision of Article 12(1) point 2 of the Act on the Legal Entities’ Income Tax recognizes as revenues, the value of obtained free-of-charge or the value of partially free-of-charge things and rights. However, article 12 (5 – 6a) of the Act on the Legal Entities’ Income Tax sets, the value of unpaid or partially-paid performances and the value of free or partially-free acquired things or rights, which are the subject of income tax.

5. The monetary value of things or rights received free of charge shall be determined in accordance with market prices applicable in trading of things or rights of the same type and quality, in particular taking into account their condition, degree of wear, as well as the time and place of obtaining them.

5a. The value of partially paid for things or rights constituting taxpayer’s revenues shall be the difference between the value of those things or rights, determined in accordance with the principles laid down in paragraph 5, and the consideration paid by the taxpayer. The provision of Article 14.3 shall apply, as appropriate.

6. The value of gratuitous performances shall be determined in the following manner:
1) if the performance concerns services included in the commercial activities of the performing party – at prices applied to other recipients;
2) if the performance concerns purchased services – at purchasing prices;
3) if the performance concerns letting the use of premises – at the equivalent of the rent that would have been due under a potential lease contract for those premises;
4) in other cases – in accordance with market prices applied in the performance of services or letting the use of things or rights of the same type and quality, taking into account their condition, degree of wear, as well as the time and place of letting them for use.

6a. The value of partially paid for performances constituting taxpayer’s revenues shall be the difference between the value of those performances, determined in accordance with the principles laid down in paragraph 6, and the consideration paid by the taxpayer. The provision of Article 14.3 shall apply, as appropriate.

The provision of article 12(1) point 2 of the Act on the Legal Entities’ Income Tax should be taken together with article 12(6) of the LEIT, which defines how the value of income from unpaid performances is determined. This is established case-by-case. For instance it may be:

the price charged to other customers – if a subject of a performance are services being a part of the business of an entity that is making the performance,
the market price that is used for the same kind of rights, taking into consideration, in particular, degree of wear, as well as the time and place of letting them for use – other than those referred to aticle 12(6) points 1-3 of the LEIT.

In the case of rights obtained free of charge, the income is determined on the basis of prices used in the market turnover of rights of the same kind, in particular, their condition and degree of use and the time and place of such use. Tax law provisions establishing the value of tax revenue for the free performances received, do not foresee a situation where appropriate performance is free for all stakeholders.

Article 12(6) of the LEIT includes cases in which there is an opportunity to compare the value of gratuitous performances to other pecuniary performances that were made by the taxpayer. The possibility of determining the value of “comparable” performances of given kind, in the case of the free software that is available to all on equal (free-of-charge/gratuitous) basis, can not be performed, and thus there is no basis for determining the value of income.

If certain performances (including the transfer of rights) are inherently free-of-charge to all taxpayers, and not an individual case that would be applicable to the individual entity, it is not allowed to establish tax revenues in connection with the occurrence of such events, as referred to article 12(1) point 2 of the LEIT. This does not mean, however, that in assessing the possible tax consequences associated with the use of such software, there is no need to examine all the circumstances connected with it. Each case therefore requires individual analysis.

These explanation of the tax consequences associated with the use of the free software, apply as appropriate to taxpayers of income tax of individuals engaged in non-agricultural economic activity (art. 14 ust. 2 pkt 8 ustawy o podatku dochodowym od osób fizycznych).

Tax law, case USPP-IV-440/30/06/P-I/23717

April 21st, 2006, Tomasz Rychlicki

The Tax Office in Chorzów in its interpretation of 27 marca 2006 case file USPP-IV-440/30/06/P-I/23717 held that publishing of a computer program free of charge via the Internet with the possibility of its use by all, is not based on legal title, indicating the obligation for service and the salary and the amount of donations is not dependent on the service, so actons of the applicant cannot be deemed as performed for remuneration. Furthermore, there was no reason to believe that these actions were services provided free-of-charge and therefore this activity is not subject to tax on goods and services.

Categories: case law | free or libre and open source software | Tax Office | VAT.