In an individual interpretation, mark 0111-KDIB1-3.4010.272.2020.1.APO, the Director of National Tax Information confirmed as correct the company’s position regarding the collection of lump-sum income tax (withholding tax) on payments for R&D services.
The applicant is a production company, belonging to an international group. The subject of the Company’s activity is the production of components and parts for the automotive industry. The company specializes in the development, production and regeneration of electrical systems. In connection with its activity, the Company acquires a number of services from foreign entities, i.e. non-residents (Non-Residents), within the meaning of art. 3 sec. 2 uCIT.
One of the types of payments made to foreign entities are payments for R&D services (R&D Services).
Indeed, the scope of benefits covered by R&D Services includes:
- in-depth analysis of customer requirements in terms of product functionality,
- proposing technical solutions,
- testing and manufacturing prototypes,
- analysis and selection of structural solutions (computer simulations, calculations),
- preparation of mock-ups for the customer and for internal product validation,
- maintaining contact with customers to ensure that projects meet their requirements, proposing alternatives and technical improvements,
- in case of problematic quality issues – identification of sources of problems, searching for solutions, testing.
The provision of R&D Services does not involve the transfer of intangible rights (in particular industrial property rights licences and know-how). R&D services are provided using such rights, however, they are made available to the Company in a separate transaction, which is subject to a separate fee.
The question was asked whether the Company is and will be obliged, as a payer, to collect a lump-sum income tax (withholding tax) on payments for R&D Services (Payments), pursuant to Article 26 Section 1 in connection with Article 21 Section 1 point 1 and point 2a of the CIT Act.
Pursuant to art. 21 sec. 1 point 1 and point 2a of the CIT Act, the income tax on account of income obtained in the territory of the Republic of Poland by taxpayers referred to in art. 3 sec. Pursuant to Article 21, section 1, point 1 and point 2a of the CIT Act, income tax on account of income obtained on the territory of the Republic of Poland by the taxpayers referred to in Article 3, paragraph 2 of the CIT Act, income from interest, from copyright or related rights, from rights to invention projects, trademarks and ornamental designs, including the sale of those rights, from charges for making available the secret of a recipe or production process, for the use or right to use an industrial device, including a means of transport, a commercial or scientific device, for information related to experience gained in the industrial, commercial or scientific field (know-how), as well as from benefits: advisory, accounting, market research, legal services, advertising, management and control services, data processing, employee recruitment and staff acquisition services, guarantees and warranties and benefits of a similar nature – is set at 20% of revenues.
Therefore, in order to consider that the Company is obliged to collect withholding tax on the payment of remuneration for the R&D Service, it should be determined whether the Payment can be considered one of (or similar to) the categories indicated in the above regulations. In other words, it has to be established which benefit is equivalent to the Payment.
It has been indicated that none of the services/supplies provided under the R&D service constitutes a service/supply similar to those indicated in Article 21(1)(2a) of the CIT Act. If the Payments for the indicated services are made to non-residents, the Company will not be obliged to collect a flat-rate income tax (withholding tax).
Author: Izabela Lipka – Tax consultant