Certificate of tax residence - special cases

Natural persons who do not have a place of residence or legal persons not having their registered office in the territory of the Republic of Poland are obliged to tax certain income earned in Poland according to the Polish tax law.

Similarly, Polish tax residents are required to tax certain income earned abroad in the country in which they were obtained.

Taxation of most of these income takes into account the content of double taxation avoidance agreements.

Along the way, there is still the problem of having or not a certificate of residence.

So, how should a taxpayer behave when taxing income received in different countries?

Polish tax resident with unlimited tax liability in Poland

Polish citizens, i.e. natural persons permanently or in some cases temporarily residing in Poland or legal persons having their registered office in Poland, are obliged to settle all their income in accordance with Polish tax law. Natural persons subject to taxation of all their income in Poland:

1. have the so-called center of vital interests in the territory of the Republic of Poland or

2. stay in the territory of the Republic of Poland for more than 183 days in the tax year to which the settlement of their income relates.

It is enough for a natural person to meet one of the above conditions, and he will qualify as a person subject to unlimited taxation of all income in Poland (regardless of the location of the sources of such income).

In the case of legal persons earning income both in Poland and abroad, who want to determine both the jurisdiction of the country of taxation and the method of taxation of the obtained income - they are required to apply for a certificate of residence.

Taxation of income earned in Poland by natural or legal persons with unlimited tax liability and by persons with limited tax liability is carried out with the use of double taxation avoidance agreements.

Agreement on the avoidance of double taxation

The agreement on avoidance of double taxation many years ago was concluded separately between the Polish government and the government of almost every country in the world.

It regulates the place of taxation appropriate for a resident of one of the countries that are parties to this agreement for taxation:

1. personal income tax - PIT,

2. corporate income tax - CIT.

It explains the methods of avoiding double taxation and, in some cases, the proportions of taxation (when the taxpayer partially taxes income in both countries).

In addition, it indicates to which type of income the tax regulations contained in a given contract apply. These are i.a. income related to:

Typical types of income included in double tax treaties
No.	Income (income) from:
1.	immovable property
2.	corporate profits
3.	profits from the operation of ships or aircraft in international transport
4.	profits of related enterprises
5.	dividends
6.	percentage
7.	royalties
8.	profits from the transfer of property ownership
9.	professional and contract work
10.	directors' remuneration
11.	profits made by artists and athletes
12.	pensions and similar payments
13.	salaries of state employees
14.	salaries of professors and scientific and technical employees
15.	student salaries
16.	other benefits

Certificate of tax residence and the obligation to use it

Certificate of tax residence means:

1. in the case of natural persons (taxation with PIT income tax) - a certificate of the taxpayer's place of residence for tax purposes, issued by the competent tax administration authority of the state of the taxpayer's place of residence;

2. in the case of legal persons (taxation with CIT) - a certificate of the place of the taxpayer's seat for tax purposes, issued by the competent tax administration authority of the state where the taxpayer has its seat.

The taxpayer is obliged to submit the certificate of residence to the competent tax administration authority in the event of:

1. filing annual tax returns in a country where they are subject to limited tax liability;

2. transfers;

3. return of overpayment of income tax;

4. spreading the liability or arrears in income tax into installments;

5. deferred income tax payment;

6. the occurrence of other circumstances.

Expiry of the residence certificate validity and responsibility the payer and the taxpayer of taxpayers
PIT	CIT
If the place of residence of the taxpayer for tax purposes has been documented with a certificate of residence which does not contain its validity period, the payer, when collecting the tax, takes into account this certificate for the next twelve months from the date of its issue.	If the place of the taxpayer's seat for tax purposes has been documented with a certificate of residence that does not contain its validity period, the payer, when collecting the tax, takes into account this certificate of tax residence for the next twelve months from the date of its issue.
If, within twelve months from the date of issue of the certificate, the taxpayer's place of residence for tax purposes has changed, the taxpayer is obliged to immediately prove the place of residence for tax purposes with a new certificate of residence.	If, within twelve months from the date of issue of the certificate, the place of the taxpayer's seat for tax purposes has changed, the taxpayer is obliged to immediately prove the seat for tax purposes with a new certificate of residence.
If the taxpayer has not complied with the above obligation, the taxpayer shall be liable for failure to collect the tax by the taxpayer or collection of the tax in an amount lower than that due.	If the taxpayer has not complied with the obligation to obtain a new certificate of residence, the taxpayer shall be liable for failure to collect the tax by the payer or to collect the tax in an amount lower than the amount due.
If the document held by the payer, in particular an invoice or contract, shows that the taxpayer's place of residence for tax purposes has changed within twelve months from the date of issue of the certificate, and the taxpayer has not complied with the obligation to obtain a new residence certificate, then the payer: cannot take into account the taxpayer's current certificate of residence for the next twelve months from the date of its issue, is not responsible for the failure to collect the tax or the collection in the wrong amount.	If the document held by the payer, in particular an invoice or contract, shows that the place of the taxpayer's seat for tax purposes has changed within twelve months from the date of issue of the certificate, and the taxpayer has not complied with the obligation to obtain a new certificate of residence, then the payer: cannot take into account the taxpayer's current certificate of residence for the next twelve months from the date of its issue, is not responsible for the failure to collect the tax or the collection in the wrong amount.
In the case of revenues from consulting, accounting, market research, legal services, advertising, management and control services, data processing, employee recruitment and sourcing services, guarantees and sureties and benefits of a similar nature, the taxpayer's place of residence for tax purposes may be confirmed with a copy of a certificate of residence, if the amount of receivables paid to the same entity does not exceed PLN 10,000 in the tax year, and the information resulting from the submitted copy of the certificate of residence does not raise reasonable doubts as to compliance with the facts.	In the case of revenues from benefits: advisory, accounting, market research, legal services, advertising services, management and control, data processing, employee recruitment and sourcing services, guarantees and sureties and benefits of a similar nature, the place of the taxpayer's seat for tax purposes may be confirmed with a copy of a certificate of residence, if the amount of receivables paid to the same entity does not exceed PLN 10,000 in a calendar year, and the information resulting from the submitted copy of the certificate of residence does not raise reasonable doubts as to compliance with the facts

It should be noted that the taxpayer, in justified cases, has the right to change the country of tax residence.

Redemption of shares by a Polish resident

Polish tax residents running a business and not running a business look for various possibilities of allocating their savings. One of them is the acquisition of foreign shares and subsequent resale at a profit by Polish natural persons (Polish tax residents) who do not trade in shares or stocks of foreign companies professionally, also through a Polish plant located abroad.

The purchase of shares on the broad market of securities issued in the USA arouses increasing interest of Polish taxpayers. There are cases when a Polish taxpayer acquires shares in entity X, the companies X and Y are merged, where Z is the sole shareholder of Y. As a result of this merger, company Y ceases to exist, company Z becomes the sole shareholder of company X, and the existing shares, among others . of the Polish taxpayer of the merged company X are redeemed against remuneration.

The question arises whether and how the redemption of shares of the merged company X and Y should be taxed in Poland?

The provisions of the Polish Act - the Code of Commercial Companies (hereinafter referred to as the Commercial Companies Code) provide for the redemption of shares or stocks in a capital company as:

1. voluntary redemption, i.e. by issuing consent by the shareholder (partner) after the company's shares being redeemed;

2. compulsory (automatic) redemption that occurs without the consent of the shareholder.

Referring to Art. 24 sec. 5 of the Personal Income Tax Act (hereinafter referred to as the PIT Act), the redemption of shares may result in taxable income:

1. on account of holding shares in the profit of a legal person - in this case qualified in accordance with the provisions of the Code of Commercial Companies as compulsory redemptions, i.e. the shares are redeemed without transferring ownership to the company or other entity, and therefore the current shareholder does not change, which results in the fact that at the time of the redemption it obtains the income from the redemption;

2. from the sale of shares for remuneration (in order to redeem them) - in this case qualified in accordance with the provisions of the Code of Commercial Companies as voluntary redemptions, i.e. first, the shares are sold by the current owner to the company, and then the company redeems these shares, i.e. income in this case it occurs already at the stage of sale of shares.

Analyzing the above case, it should be emphasized that the shares of a Polish resident were redeemed when he was their owner all the time, so based on the Polish provisions of the Code of Commercial Companies, they are classified as compulsory (automatic) redemption resulting in the generation of income for a Polish natural person. from participation in the profits of the legal entity.

Start a free 30-day trial period with no strings attached!

It is worth noting that the double taxation treaty between the Government of the Republic of Poland and the Government of the United States of America of October 8, 1974 in Art. 11 indicates that the income of a Polish tax resident who is a natural person from the redemption of shares of a company operating in one of the US states will be subject to taxation in the territory of the Republic of Poland.

Under Art. 24 sec. 5 point 1 of the PIT Act, income from participation in the profits of legal persons constitutes a gain not only from the sale of shares, but also from the redemption of shares (shares) or reduction of their value.

The income from the redemption of shares will be the surplus of the income obtained from the redemption over the expenses for their purchase. If the shares were acquired by inheritance or donation, the deductible costs will be the expenses incurred by the testator or the donor for the purchase of these shares.

Taxation of the obtained surplus should be qualified in accordance with Art. 30a paragraph. 1 point 4 of the PIT Act, i.e. due to the fact that there is no intermediation of a tax payer in this situation, a Polish tax resident should collect a 19% flat-rate income tax from the surplus obtained.Of course, the method of taxation should follow the previously quoted provision of the agreement on avoidance of double taxation between Poland and the USA, taking into account the certificate of residence.

It should be noted that the 19% flat-rate income tax is collected without reducing the acquisition costs, but with the exception of acquisition costs due to the occurrence of an income from redemption of shares in connection with Art. 24 sec. 5 point 1 of the PIT Act. The Polish taxpayer will show the obtained income in the annual tax return PIT-36 for the year in which the redemption took place.

The above position is confirmed in the judgment of the Provincial Administrative Court in Szczecin of October 29, 2019 (reference number I SA / Sz 468/19).

Payment of remuneration for the provision of legal services

Polish companies more and more often sell their goods not only to EU Member States, but also to countries outside the EU. The United States of America is one of the recipients of Polish goods. Due to this, Polish companies in some cases use the services of American law firms, where these law firms are often not legal entities and their income is taxed at the level of partners.

In this case, Polish companies often receive the so-called a collective certificate of tax residence containing only the names and surnames of all partners in a US law firm together with a declaration of the local tax authority that the partners are US tax residents.

Therefore, there is no data required when filling in the IFT-1 / IFT-1R annual information to settle the tax on the paid receivables for the American law firm (partners). Sometimes Polish companies also receive a statement on the percentage share in the profit of the law firm of individual partners, but this still does not solve the problem.

How should a Polish company behave in such circumstances?

As Art. 8 sec. 1 of the aforementioned double taxation treaty between Poland and the USA, profits from an enterprise of a contracting state should be taxed only in that state, unless the enterprise operates in the other contracting state through a permanent establishment located there. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment.

Due to the fact that the partners of the American law firm are taxpayers and not the law firm, the identification of income should be made pursuant to Art. 8 sec. 1 of the PIT Act, and therefore revenues from participation in a company which is not a legal person, from joint ownership, joint venture, joint ownership or use of property or property rights in each taxpayer is determined in proportion to his right to share in profit (share) and is linked to with other income from sources from which the income is taxed according to the scale. In the absence of evidence to the contrary, it is assumed that the rights to profit participation (share) are equal.

For the proper assignment of the place of taxation to the income obtained by the partners of the law firm, it is required to obtain a certificate of residence for each partner, which will contain the following data:

1. address,

2. name and surname of the taxpayer,

3. father's and mother's name,

4. date and place of birth,

5. taxpayer identification number together with the country of issue of this number.

However, it should be borne in mind that the tax residence certificate is issued according to the internal regulations of individual countries. Therefore, it may be issued in various forms, e.g. collective form, if it concerns many taxpayers (natural persons).

This type of document is still valid and is proof - confirmation for determining the actual place of residence for tax purposes. Thus, such a certificate of tax residence also documents that partners of an American law firm earn income in the territory of the Republic of Poland, and their place of residence for tax purposes is in the territory of the USA, so in individual states of the USA (according to the place of residence) the partners of the firm are subject to unlimited tax liability under any source of income designated by each United States of America, regardless of the location of the source of that income.

Start a free 30-day trial period with no strings attached!

Therefore, in this specific case, a Polish company, under the payment of fees for received legal services in accordance with Art. 29 sec. 1 point 5 of the PIT Act is not obliged to collect a flat-rate income tax on the amount paid for each part (percentage share of the partners in the profit of the American law firm) of this amount paid for the provided legal services.

Moreover, pursuant to Art. 42 sec. 2 point 2 of the PIT Act, a Polish company that is an income tax payer is obliged to send to the partners of the office, i.e. foreign natural persons who are not Polish tax residents (subject to limited tax liability in Poland) and tax offices with the help of which the heads of tax offices competent in matters of taxation of foreign persons perform their tasks by the end of February of the year following the tax year - personal information.

This information, i.e. IFT1 / IFT1-R, documents the amount of income achieved by the partners of the American law firm in the territory of the Republic of Poland. However, if the Polish company was refused to obtain the previously mentioned required data for the preparation of this information, then it will not be obliged to complete and send IFT1 / IFT1-R neither to the partners nor to the competent tax office.

The above position is confirmed by the judgment of the Supreme Administrative Court of September 16, 2010 (reference number II FSK 1989/08) or the judgment of the Supreme Administrative Court of January 29, 2015 (reference number II FSK 127/13) on the application of the so-called rules impossibilium nulla obligatio est.