The withholding taxpayer should verify double taxation agreements, not only in Polish

December 10, 2024

On October 28, 2024, the Supreme Administrative Court (NSA) adopted a resolution of significant importance regarding the obligations of withholding taxpayers.

Swedish company as an intermediary: dispute over withholding tax

The case concerned a company’s complaint against a decision by the Head of the Customs and Tax Office, in which the authority determined that the company (as the payer) was liable to pay withholding tax not collected in 2013 on income from interest on loans from a company based in Sweden, simultaneously ruling on the payer’s liability. The authority found that the Swedish company did not conduct actual business activities and acted only as an intermediary in receiving and redistributing loans to other related companies. Therefore, the authority concluded that the Swedish company was not the actual beneficial owner of the interest paid under the loan agreements, as it had to settle its loan agreements with a Luxembourg company. Consequently, the Polish company should have withheld the tax at source.

Withholding tax and the state’s error

The company appealed the decision, arguing that the Poland-Sweden double taxation agreement (DTA) did not require it to withhold tax at source. Only in 2017 did the Minister of Foreign Affairs publish a correction to the Polish version of Article 11(1) of the Poland-Sweden DTA, adding the term “beneficial owner” to the contested provision. Thus, the Polish translation had been erroneous, and the company should not bear negative consequences for the state’s oversight.

WSA ruling: The taxpayer does not need to know a foreign language.

The Voivodeship Administrative Court (WSA) in Szczecin, in a judgment dated May 19, 2021 (Case No. I SA/Sz 820/20), ruled in favour of the company. It pointed out that Polish is the official language in Poland, and citizens (taxpayers) should be informed of their obligations and rights in that language. Tax authorities cannot require taxpayers to consult the applicable regulations in a foreign language and independently interpret their translations. Such an approach would make the application of a regulation dependent on the taxpayer’s foreign language proficiency or a translator’s ability to render a specific legal text. It is the state’s responsibility to ensure the accuracy of translations of international agreements published in the Official Gazette.

NSA resolution

The tax authority filed a cassation appeal against this ruling, and the NSA, in a decision dated June 20, 2024 (Case No. II FSK 1173/21), referred the matter, raising serious doubts, to a seven-judge panel for resolution. On October 28, 2024, the NSA issued a resolution (Case No. II FPS 1/24), stating that the payer should apply the contested provision of the Poland-Sweden DTA in its English version, regardless of the correction made by the Minister of Foreign Affairs.

Controversies surrounding the NSA resolution

In light of this resolution, payers should analyze the convention texts in Polish and the texts in English. It is difficult to accept the NSA’s position, as it implies that taxpayers (payers) are burdened with the consequences of errors made by the state (authorities).

Tags double taxation, podwójne opodatkowanie, withholding tax Poland