Polish companies often use hosting services provided by foreign suppliers. But should a 20% withholding tax be applied in such cases? Until recently, the answer to this question was unclear. However, a recent ruling by the Supreme Administrative Court (case no. II FSK 1361/22) sheds new light on the matter – and it’s favorable to taxpayers.
The dispute over what constitutes “industrial equipment”
According to Article 21(1)(1) of the Corporate Income Tax Act, Polish companies are required to withhold tax on payments made to foreign contractors, including payments for the use of industrial, commercial, or scientific equipment. However, the law does not define what exactly is meant by “industrial equipment,” which has led to interpretative disputes for years.
Until now, the Polish tax authorities have taken a position unfavorable to taxpayers, arguing that servers – including virtual ones – should be treated as industrial equipment if used in business operations. This would mean that hosting fees are subject to 20% withholding tax, unless a double tax treaty applies and a valid tax residency certificate is obtained.
The Supreme Court: hosting is not the use of industrial equipment
In its latest ruling, the Supreme Administrative Court sided with the taxpayer. The case involved a company that purchased hosting services from entities based in Germany, Belgium, and the Czech Republic. The hosting services were limited to data storage and ensuring data security. The company had no physical or technical access to the servers, did not know where they were located, and had no control over their operation.
The court emphasized that there was no use of industrial equipment – the company did not possess, maintain, or have access to the servers. The Court further noted that a server could be considered industrial equipment if it plays a role in a production process, but that was not the case here.
Implications for businesses
If the acquired hosting service is limited to data storage without physical access to the equipment, the risk of it being classified as the use of “industrial equipment” is low.
It is advisable to document the lack of physical and technical control over the IT infrastructure – this may be critical in the event of a tax audit. This does not waive the obligation to exercise due diligence and obtain a valid tax residency certificate from the foreign contractor – especially if other elements of the service might be subject to tax. Further developments in case law and potential legislative changes should be monitored – the Court itself emphasized the need for clearer regulations.
Summary
The ruling confirms that payments for standard hosting services (i.e., data storage without access to physical infrastructure) should not be subject to withholding tax in Poland. However, each case must be assessed individually – particularly whether the server is linked to equipment used in a production process.
Making business easier.
