The rapid growth of cloud computing has made solutions offered by international providers such as Microsoft, Amazon Web Services (AWS), Google Cloud and Oracle an integral part of everyday business operations. Despite becoming a standard business tool, cloud services continue to raise significant uncertainties from a Polish withholding tax (WHT) perspective.
The key question remains whether payments for cloud services should be treated as royalties subject to withholding tax or as payments for services that fall outside the scope of WHT.
Why is this issue so important?
Under the Polish Corporate Income Tax (CIT) Act, Polish entities making certain payments to foreign recipients may be required to withhold tax at source.
Incorrect classification of payments may result in:
- the obligation to pay outstanding withholding tax by the Polish payer,
- late payment interest,
- liability of management board members,
- penalties under the Polish Tax Ordinance and the Fiscal Penal Code.
For this reason, correctly identifying the nature of the purchased service is essential.
What are cloud services?
Cloud computing involves providing IT resources via the Internet. The most common service models include:
- Infrastructure as a Service (IaaS),
- Platform as a Service (PaaS),
- Software as a Service (SaaS).
In most cases, the customer does not acquire software itself or any rights to exploit it. Instead, the customer is merely granted access to functionalities made available by the provider.
This distinction is crucial from a withholding tax perspective.
When does withholding tax apply?
Under the Polish CIT Act, withholding tax may apply, among others, to:
- royalties,
- interest,
- dividends,
- selected intangible services listed in Article 21 of the CIT Act.
Therefore, the key issue is whether payments for cloud services constitute royalty payments.
Both the Polish tax authorities and administrative courts increasingly recognize that simply using software provided under the SaaS model does not constitute the acquisition of copyright-related rights.
Where the user:
- does not receive a copy of the software,
- cannot reproduce it,
- has no right to modify it,
- merely accesses functionalities made available online,
the remuneration should generally not be regarded as royalties.
Consequently, in many situations, no withholding tax obligation arises.
When is the WHT risk higher?
The risk increases where the agreement grants broader rights to the software, for example:
- the right to install the software,
- the right to reproduce copies,
- the right to distribute the software further,
- the right to modify the source code.
In such cases, the payment may qualify as a royalty.
Accordingly, the assessment should always be based on the actual contractual rights rather than simply on the name of the agreement.
Position of the tax authorities and administrative courts
In recent years, both the tax authorities and administrative courts have gradually shifted their approach.
Increasingly, they emphasize that cloud computing services should be assessed according to their actual economic substance. Merely using software does not automatically mean that the user acquires copyright-related rights.
However, administrative practice remains far from consistent. In certain cases, the tax authorities continue to classify particular payments as royalties, especially where the customer’s rights go beyond standard online access.
The definition of an “industrial device”
One of the most controversial issues concerns whether payments for IT infrastructure (IaaS), servers or cloud storage constitute consideration for the use of, or the right to use, an industrial device within the meaning of Article 21(1)(1) of the Polish CIT Act and the relevant double tax treaties.
The Polish tax authorities often adopt a broad interpretation, arguing that the concept of an industrial device also includes modern IT infrastructure, including servers used in cloud computing environments. Consequently, they maintain that payments for using such infrastructure may be subject to withholding tax.
Administrative courts have increasingly taken a different approach, repeatedly holding that:
- the term “industrial device” should not be interpreted broadly,
- modern IT infrastructure is not automatically an industrial device,
- in cloud computing models, users typically receive access to a service rather than to a specific piece of equipment,
- the essence of cloud computing lies in providing electronic services rather than granting the right to use equipment.
The courts also increasingly emphasize that the mere fact that a provider uses servers or data centres does not mean that the customer acquires the right to use an industrial device for withholding tax purposes.
Nevertheless, the risk has not disappeared entirely. Certain individual tax rulings continue to adopt a more restrictive approach, and each payment should be assessed based on the actual contractual arrangements.
In practice, no single rule can be applied to every cloud computing model. Different considerations apply to:
- Infrastructure as a Service (IaaS),
- Platform as a Service (PaaS),
- Software as a Service (SaaS),
- hosting services,
- colocation services,
- dedicated infrastructure solutions.
The decisive factor is whether the customer is actually granted the right to use specific equipment or whether the provider merely supplies a comprehensive IT service.
Recent tax ruling confirms the restrictive approach
The restrictive position of the Polish tax authorities was reaffirmed in an individual tax ruling issued by the Director of the National Revenue Information on 8 May 2026 (No. 0114-KDIP2-1.4010.91.2026.2.PP).
The case concerned payments made by a Polish company to a foreign provider for access to financial software offered under a standard Software as a Service (SaaS) subscription model. The taxpayer argued that the agreement constituted a typical end-user licence and did not involve any transfer of copyright or software exploitation rights.
The tax authority agreed that the arrangement did not give rise to royalty payments based on copyright. However, it reached a different conclusion by focusing on another category covered by Article 21(1)(1) of the CIT Act—payments for the use of an industrial device.
According to the authority, the decisive factor was that the SaaS solution provided the customer with cloud storage enabling the transmission and storage of data and the generation of reports. Since the customer was allowed to use the provider’s server infrastructure, the authority concluded that the payment constituted remuneration for the use of an industrial device and therefore fell within the scope of withholding tax, subject to the applicable double tax treaty.
This ruling demonstrates that even where software subscriptions do not qualify as copyright royalties, the tax authorities may still seek to impose withholding tax by relying on the broad interpretation of the concept of an industrial device.
Domestic law is not the only consideration
When assessing withholding tax obligations, taxpayers should also consider:
- the applicable double taxation treaty,
- the treaty definition of royalties,
- the OECD Model Tax Convention and its Commentary,
- current case law of the Polish administrative courts and the Court of Justice of the European Union.
In many cases, even if a payment could potentially be classified as a royalty under domestic Polish law, the applicable tax treaty may reduce the withholding tax rate or eliminate the obligation altogether.
How can taxpayers reduce the risk?
Before making payments to foreign cloud service providers, businesses should:
- Review the agreement and the scope of rights granted.
- Determine whether the payment relates to copyright rights or merely to the provision of services.
- Verify the relevant provisions of the applicable double taxation treaty.
- Obtain a valid tax residence certificate from the foreign supplier.
- Properly document the analysis performed as part of the required due diligence process.
For more complex arrangements, applying for an individual tax ruling should also be considered.
Summary
As cloud services become increasingly important for businesses, withholding tax has become a critical aspect of cross-border payments to foreign IT service providers.
Although payments for standard cloud computing services will often fall outside the scope of royalty payments, each arrangement should be analysed individually, taking into account both the contractual rights granted to the customer and the actual economic substance of the service.
From a taxpayer’s perspective, correctly classifying the payment is only part of the process. Equally important is maintaining robust documentation demonstrating that appropriate due diligence was exercised. In the event of a tax audit, it is the Polish payer who will need to prove that its withholding tax assessment was properly performed.
Our support
Check out our tax, and payroll and HR services that we provide for our clients. We are here to make your business easier.
Making business easier.
