The Polish legislature specified that the obligation to use KSeF will only apply to foreign taxpayers with a FE in Poland who are involved in transactions that result in an invoice. A taxpayer with a FE in the territory of Poland but issuing an invoice as part of other business operations not related to that FE, will not have to use KSeF, unless they voluntarily opt for such an option.
On the surface level, this issue seems quite clear. Meanwhile, when a taxpayer begins to analyze their situation, the list of questions grows exponentially. Is the FE unquestionably located in the territory of Poland? Are activities performed in the FE subject to mandatory invoicing in KSeF?
How to determine if a foreign entity is required to use KSeF?
Unfortunately, these are issues that the legislature itself is uncertain about. In the original version of the bill introducing KSeF, the register of VAT taxpayers (the so-called "white list") was to include information on FEs. However, in the final version of the bill, these provisions were eliminated.
The situation is made more difficult by the fact that the legislature announced severe financial penalties for violating the obligation of issuing an invoice through KSeF. During consultations on the new draft, the Ministry of Finance indicated that it would prepare guidelines for determining a FE. Unfortunately, given the guidelines issued so far, it should be assumed that many unresolved doubts will remain, and it will be up to taxpayers to resolve them. It is difficult to confirm at this time what form these guidelines may take, i.e., tax clarifications that have protective legal force for taxpayers who comply with them, or clarifications that do not carry such force. Moreover, it is difficult to say when, if ever, such guidelines will appear.
Meanwhile, there is not much time left until July 1st, 2024, i.e., when mandatory KSeF goes into effect and this problem starts affecting many foreign taxpayers.
How to determine if the fixed establishment (FE) is in Poland?
Below we provide you with a few guidelines to consider when determining whether a FE is in the territory of Poland.
Polish regulations do not define the concept of a fixed establishment. This is defined in Article 11(1) of EU Regulation 282/2011 (hereinafter Reg. 282/2011). A "permanent place of business" should be understood as any place, other than the taxpayer’s headquarters, which is characterized by sufficient permanence and an adequate structure in terms of personnel and technical facilities to enable the receipt and utility of services provided for the own needs of that place.
Important: The fact that a taxpayer has a VAT identification number is not sufficient in determining a permanent place of business within a given country.
When interpreting the concept of "permanent place of business,” referring to the Court of Justice of the European Union (CJEU) rulings, it should be indicated that the fixed establishment has an appropriate structure in terms of personnel and technical facilities, necessary for conducting business. It is also worth indicating that the scale of conducted business activity makes it possible to consider that the taxpayer's activities at this location are not carried out on a periodic basis, but on a stand-alone, individual basis in relation to the activities of the company's headquarters.
Defining the concept of a FE in the aforementioned regulation does not resolve all doubts. The definition remains unclear and requires constant interpretation at both the EU and national level. The CJEU, as well as the national courts of individual EU member states, and the Fiscal Office have repeatedly voiced opinions on these issues. Unfortunately, instructions contained in these rulings often result in changes in the approach to this problem, causing legal uncertainty for taxpayers.
What are the factual circumstances that indicate the possession of a fixed establishment?
Primarily, a permanent place of business should be characterized by certain degree of involvement, making it possible to determine that the activity is conducted not in a transient or periodic manner. Accordingly, it is necessary to have a specified minimum scale of activity, which is an external indicator that activities at that location are carried out on a permanent basis. Most often, this constitutes personnel and physical assets accumulated at that permanent location which are utilized to carry out business activities.
If an activity carried out in an EU country, despite the involvement of significant human and material resources, has the characteristics of a project i.e., after its completion, the resources will be withdrawn, then it cannot be deemed as permanent. Such activity does not comprise an FE. Furthermore, it is not necessary to have one's own personnel and technical facilities to determine a permanent place of business within a country. However, the taxpayer must have - based on the requirement of a sufficient permanence of the place of business - comparable control over personnel and technical facilities.
The CJEU's case law is up to date in this regard, including the judgment C-168/84 Gunter Berkholz, C-231/94 Faaborg-Gelting Linien A/S, C-190/95 ARO Lease By, C-260/95 Commissioners of Customs and EB. Sp. z o.o.cise v. DFDS A/S, C-390/96 Lease Plan LuB. Sp. z o.o., as well as C-605/12 Welmory Sp. z o.o.
Secondly, the technical infrastructure and personnel involvement must be in close alignment with the performance of taxable activities. Thus, to be considered as a FE, a permanent place of business must not only utilize goods and services, but itself perform taxable activities.
As another condition, the activity carried out must be characterized as independent, e.g., at the decision-making level, from other activities of this entity, such as in the country of its headquarters. It cannot be, for example, ancillary to the main activity carried out in another country. In the judgment in Case C-190/95 (ARO Lease BV), the CJEU stated that a permanent place of business must be able to conduct its activities independently. This means, according to the CJEU, that such a permanent place of business must be able to (i) draw up contracts, or (ii) make decisions of a managerial nature (see paragraph 19 of the judgment).
In this regard, it is worth mentioning the CJEU ruling C-333/20 of April 7, 2022, in which the CJEU stated that "Article 44 of Council Directive 2006/112/EC (...) must be interpreted as meaning that a company with its registered office in one Member State does not have a fixed establishment in another Member State on the ground that that company owns a subsidiary there that makes available to it human and technical resources under contracts by means of which that subsidiary provides, exclusively to it, marketing, regulatory, advertising and representation services that are capable of having a direct influence on the volume of its sales.” In addition, the CJEU ruled that the same personnel facilities cannot be used simultaneously for the provision and receipt of the same services.
In its judgment C-232/22 of June 29, 2023. The CJEU ruled that the "taxable person receiving services, whose business is established outside the European Union, does not have a fixed establishment in the Member State in which the provider of the services concerned – which is legally independent from that recipient – is established, where that recipient does not have a suitable structure in terms of human and technical resources capable of constituting that fixed establishment, even where the taxable person providing the services provides to that taxable person receiving services, pursuant to an exclusive contractual undertaking, tolling services and a series of ancillary or additional services, contributing to the business of that taxable person receiving services in that Member State.”
It is also worth considering the domestic case law.
For example, in its judgment of October 22, 2021, ref. I FSK 1519/19, the Supreme Administrative Court, referring to CJEU and domestic case law, indicated that:
- The permanent place of business should be characterized by sufficient consistency, i.e., a sufficient permanence of business activity in the national territory and an adequate structure in terms of personnel and technical facilities to enable the taxpayer the supply of goods or services in which they participate.
- It is necessary to enter into service contracts and rental agreements for personnel and technical facilities that are not subject to termination in the short term, and it is necessary for the foreign entity to have control over the personnel and technical facilities in a manner comparable to the situation where the personnel and technical facilities would be owned by the taxpayer.
- For determining the place of taxation, the primary point of reference is the place of economic activity. Other places should be taken into account only if the reference to such a place leads to unreasonable results or creates a conflict with respect to another Member State. At the same time, this other place should be determined only in exceptional situations and cannot be presumed. The purpose of the rules for determining the place of taxation of services is to avoid, on the one hand, a confluence of properties that can lead to double taxation and, on the other hand, non-taxation.
What are the consequences of issuing an invoice in a different form than indicated by KSeF regulations?
The penalty for a failure to issue an invoice through KSeF is to be up to 100% of the amount of VAT included in the invoice. However, the penalty will be mitigable, rather than fixed at 100% of the VAT amount.
The simplest way to minimize this risk for entities that are unsure about having a FE in Poland would be to settle for optional invoicing in KSeF. Of course, opting for such a solution involves adjusting internal processes as well as accounting and IT systems.
Another possibility is to implement a solution such as self-invoicing, in which the buyer of goods issues an invoice on behalf of the seller. This solution, however, may be opted for only by certain entities that have rather regular recipients and all of whom would agree to enter into a self-invoicing agreement.
Another option is to apply to the Director of National Tax Information for an individual interpretation in this regard. However, it should be noted that the duration of obtaining an interpretation is, in principle, 3 months. However, in extreme cases, e.g., in the situation of a dispute before a court, the process may last up to several years.
Another reason why it is important to determine whether we have a FE in Poland is that the seller will not be obliged to provide us with an invoice in the existing way (e.g., by email, letter, etc.) if we have a FE in Poland participating in these transactions. In such a situation, both sellers and buyers will have a problem. The former may have a problem with the form in which they should forward the invoice, while the latter may not know that they have received it. This can clearly interfere with the processes of correct VAT reporting in VAT returns. It may happen, for example, that we miss the deadline for a VAT deduction without being aware that we have received an invoice in KSeF, or, for example, we may not know that we have received an invoice correction in KSeF. In such situations, it will be necessary to come back to the VAT returns and correct them after the allowed settlement deadlines.
The problem of establishing a permanent place of business in Poland cannot be underestimated. In view of the nearing deadline for the introduction of KSeF, we encourage you to analyze your situation in terms of the FE and take all measures to minimize risk and avoid problems in this regard.