On January 3, this year. The Director of National Treasury Information issued an individual interpretation, with the reference number 0114-KDIP2-1.4010.461.2019.1.SP, the subject of which was to determine whether the planned activity of the Company with its registered office in Slovakia in the form of opening an office in the territory of Poland, where the employee will be employed, will lead to the establishment of a permanent establishment in the territory of Poland.

In the presented facts, the Company’s activity consists in long-term lease of railway freight wagons. The company plans to expand its operations in the territory of Poland.

In connection with the above, an issue arousing the company’s doubts arose: Whether the planned activity will lead to the establishment of a permanent plant in the territory of Poland.

It follows from the double taxation convention between Poland and Slovakia that for a company to carry out its activities in the other contracting state through a permanent establishment, there must be a total of the following three conditions:

  • existence of a place where the activity is conducted (establishment)
  • the permanent nature of such an establishment,
  • the pursuit, through the establishment, of economic activities which are not of a preparatory or ancillary nature.

For such an establishment to be regarded as an establishment, the undertaking must carry on its own activities wholly or partly through such an establishment, the activities of the establishment need not be of a productive nature.

It should be noted that the position set out in the commentary to the OECD Model Tax Convention on Income and on Capital, according to which the fact that an establishment must be permanent means that the establishment can only exist if the establishment has a certain degree of permanence, i.e. it is not merely temporary. An establishment includes any room, means or facilities used for the operation of the business, whether or not they are used exclusively for that purpose. Furthermore, it is irrelevant whether the undertaking is the sole owner or tenant of the premises or otherwise has them at its disposal. An establishment may be situated in the premises of another undertaking, e.g. if a foreign undertaking has permanently owned or operated a room or part thereof belonging to another undertaking.

It is also important that the mere fact that an enterprise has some space at its own disposal for its business activity is sufficient for a permanent business establishment to exist. It is not required for an enterprise to have a formal right to dispose of such an establishment.

Therefore, if a Slovak company rents an office in Poland and hires an employee, the condition of having a permanent establishment will be fulfilled.

To sum up, it should be remembered that the definition of a foreign establishment regulated in Article 4a point 11 applies unless the double taxation convention provides otherwise. The importance of the commentary to the OECD Model Tax Convention on Income and on Wealth should also be emphasized, which is of great importance in the situation of doubts concerning its interpretation.

Author: Izabela Lipka ? tax consultant