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If you run a company in Poland that provides IT services and as part of subcontracting you use the support of IT specialists from the other EU member states or third countries – you should take a look at this article to decide whether you settle the tax properly.
According to the individual tax ruling issued by the Director of National Tax Information on August 27, 2019 (signature 0111-KDIB3-3.4012.232.2019.2.PK), the above mentioned IT services, even if they have been rendered by entities that are not taxable persons or do not formally run a business in their country of origin, should be recognized as an import of services in a VAT return in Poland. Details below.
The company that applied for an interpretation provides IT services mainly to foreigners and “the main area of its expansion is activity through a network throughout the world.” Due to the rapid business expansion, the Company uses the support of subcontractors – entities based outside Poland, including i.a. Romania, Serbia, Slovenia. The subcontractors are paid based on invoices or bills with no VAT included and the work is performed virtual and remotely.
Additionally the Company in its justification included in the application emphasized that persons providing the services on the basis of a mandate contract form a relationship with the Company similar to the employment relationship within the meaning of Polish Labour Code what means that they bear no economic risk or responsibility for the activities performed. These are natural persons who do not run a business but just offer their spare time and skills in exchange for salary paid at an hourly rate determined in advance. To sum up, in the applicant’s opinion, they cannot therefore be considered as taxable persons within the meaning of the Polish VAT Act, and thus the purchased services do not constitute an import of services.
The authority considered such a position to be incorrect, indicating that entities having their registered office / place of residence outside the territory of the country that provide IT services to a Polish taxpayer perform activities bearing the hallmarks of business activity, even if they are not formally recognized in their country as entrepreneurs.
According to the Director of National Tax Information: “It should be noted that for the recognition of a given entity as a taxpayer, the result of the business does not matter. This means that to recognize the entity’s activity as an economic activity it is not necessary for it to bring any effects. Therefore, the taxpayer is also the entity conducting business generating losses, and even an entity that will not make any sales at all. (…) Also a person who declared the intention to conduct business activity and made some expenditures for this purpose should be considered a taxpayer, even though the economic activity itself has not yet started and even if it never starts. “
Therefore, according to the authority, within the meaning of Polish VAT regulations and based on the presented in the tax ruling actual status the legal definition of the taxpayer will be fulfilled, and the place of performance of such service will be the country of the service recipient. Summarizing, the Polish company is obliged to recognize the import of services in the VAT return and to settle the VAT due on the territory of the country in accordance with the reverse charge mechanism.