We are pleased to announce that our client has won before the Supreme Administrative Court (“SAC”) on the issue of fixed establishment. The court followed our argument and held that the client cannot be considered to have a fixed establishment in Poland because it does not have its own human resources in Poland or any control over its supplier’s staff.
As a result, SAC reversed the adverse judgment of the lower court and the tax ruling which was issued by Director of Warsaw Tax Chamber on behalf of the Minister of Finance.
This is a huge success for both our client and our tax advisors. The outcome is also relevant for taxpayers at large as it provides a taxpayer-friendly authoritative interpretation to the effect that there is no FE if there are no sufficient human resources.
The case involved a tax ruling issued at the request of our client (also referred to as the Company).
In its request for the ruling, the Company explained that:
- it is established in, and is a tax resident of, Italy;
- it entered into several contracts with its Polish affiliate concerning contract manufacturing, integrated logistic services, integrated administrative services, as well as marketing and sales support;
- the activities pursued under those contracts are limited to provision of certain services and supply of certain goods to the Company in Poland and purchase of raw materials from the Company;
- in connection with those contracts, the Company does not have its own personnel in Poland that would do anything for the Company, nor does it have any technical resources, such as real estate, plant or machinery, that would be its property;
- the contracts between the Company and its Polish supplier do not authorise the Company to control or instruct any employees of the supplier or to freely use, handle or dispose of the supplier’s tangible assets, and in particular do not give the Company the right to enter the supplier’s storage premises.
The Company wanted to be sure that, under such facts/proposed arrangement, it would not have a fixed establishment (FE) in Poland.
The Director of Warsaw Tax Chamber, i.e. the tax authority that dealt with the Company’s request, held that those contracts and the activities pursued thereunder created a Polish FE for the Company. Our client appealed to the court, which however affirmed the tax authority’s ruling.
Appeal in cassation
The Company contested that judgment by filing an appeal in cassation with SAC. SENDERO supported the Company in this appeal, arguing that the legal FE test is not fully satisfied in the Company’s case. In particular, we claimed that the Company does not have a suitable structure in terms of technical and human resources.
Our argument was that for the FE test to be satisfied, the Company must either:
- have in Poland its own human resources (e.g. employed staff) and technical resources (such as real estate, plant or machinery), or
- rely in its Polish business operations on external human and technical resources which it actually has under control.
We claimed that neither limb of this test was satisfied in our client’s case.
We relied on various evidence and authorities in support our argument, including CJEU’s judgment of 16 October 2014 in Welmory C-605/12 (and the related opinion of AG Juliane Kokott) and its recent judgment in Titanium C-931/19 (3 June 2021).
SAC agreed with us. In verbally expounding its ratio decidendi, the court said that the Company does not have an FE in Poland because it does not have its own human resources in Poland nor does it have control of any human resources of its supplier. SAC relied on a number of CJEU cases, including those we brought up in the proceedings.
During the SAC proceedings our client was represented by Szymon Karpiński, tax advisor and partner, and Monika Bilska, tax advisor, both of SENDERO Tax & Legal.
Supreme Administrative Court judgment of 29 July 2021, case no. I FSK 660/18.