One of the documents which entitle to apply a reduced tax rate, exemption or non-collection of tax in accordance with the provisions of the relevant double taxation convention or specific provisions is the certificate of residence.
Pursuant to Article 4a(12) of the Polsih Corporate Income Tax Act (UoCIT), a certificate of residence means a certificate of the place of residence of a taxpayer for tax purposes issued by a competent tax administration authority of the country of the taxpayer’s place of residence.
Thus, the certificate of residence is a document issued by a competent tax administration confirming a specific factual state – the place of residence of a taxpayer for tax purposes, which in the case of corporate income tax payers is the place of its seat or management.
Certificate in paper or electronic form
Neither the definition of the certificate of residence contained in Article 4a(12) of UoCIT nor other provisions of the tax laws specify in what form (paper or electronic) the certificate should be delivered to the tax authority. It is only indicated that the official documents, including the certificate of residence, meet the conditions specified in Article 194 § 1 of the Tax Ordinance Act.
Tax administrations in different countries issue certificates of residence in paper, electronic or both forms. Polish tax authorities consider these forms of certificates to be in accordance with art. 4a (12) of the UoCIT if, in light of the regulations of another state, a specific form of certificate is legally permissible.
In the judgment of the WSA in Szczecin of 25 January 2018, ref. I SA/Sz 984/17, the Court indicated that “if, under the law of a given state, it is possible to obtain a tax residency certificate, both in paper and electronic form, while both forms are issued by a competent authority of a given state and at the same time have an equivalent status in the legal order in force in that state, there are no grounds for questioning the validity of the certificate of residency so issued“.
In addition, the Director of the Tax Chamber in Poznań in an individual interpretation of 12.09.2016 No. ILPB2/4510-1-15/16-5/ŁM indicated that “(…) there is no uniform form of residence certificates. The definition of the certificate of residence specified in Article 4a(12) of the Corporate Income Tax Act also does not decide about it. Each state applies its own specimen of such certificate and has its own formal requirements related to its issuance”.
The regulations also indicate that in the case of revenues referred to in Article 21 par. 1 point 2a of UoCIT, (for example, advisory, accounting, market research), the place of residence of a taxpayer for tax purposes may be confirmed with a copy of the certificate of residence if the amount of receivables paid to the same entity does not exceed PLN 10 000 in a calendar year and the information resulting from the submitted copy of the certificate of residence does not raise justified doubts as to its compliance with the facts.
Proceeding in times of COVID-19
If a certificate of residence is issued by a foreign tax authority only in paper form, currently during the COVID-19 pandemic, it may be difficult to obtain such a certificate.
Some foreign tax administrations operate only to a limited extent or cases are handled only electronically.
It should be noted that issues related to the impossibility of obtaining a residence certificate are not regulated by the Act of 31 March 2020 amending the Act on Special Arrangements for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Emergencies and certain other acts.
Therefore, a Polish entity which will not have the possibility to obtain a certificate before making a payment has two ways of proceeding in accordance with the applicable regulations:
- Pending the certificate of residence, the Polish entity acting as a payer may collect tax at a reduced tax rate, apply an exemption or not collect tax in accordance with the provisions of the relevant double taxation convention or specific regulations.
In such a situation, the Polish entity may document the tax residence of the payee with a certificate of residence received after the payment, provided that such certificate confirms the entity’s tax residence for the period in which the payment was made.
According to the individual interpretation by the Director of the Tax Chamber in Łódź of 30 December 2013, No. IPTPB1/415-683/13-5/AP referring to the regulations contained in the Personal Income Tax Act (analogous to the UoCIT regulations) “Documentation of the tax residence of a foreign entity receiving income listed in Art. 29 par. 1, Art. 30a par. 1 and Art. 30b par. 1 of the said Act may take place both before and after the payment is made. However, if a certificate is obtained after the payment, such certificate should confirm the tax residence of the entity for the period in which the payment was made”.
However, such an action, although legally permissible, carries the risk of paying tax (with interest) in the amount resulting from a decision of the tax authority in the event that a tax inspection is initiated before the certificate of residence is received.
- A Polish entity may pay tax without the possibility of applying a reduced tax rate, exemption or non-collection in accordance with the provisions of the relevant double tax treaty or special provisions and apply to the tax authority after receiving the certificate of residence with a refund application.
If the tax is paid, the remitter, upon receipt of a certificate of residence confirming the entity’s tax residency for the period in which the payment was made, may apply to the tax authority to declare an overpayment of tax in accordance with the regime described in Section III (Chapter 9) of the Tax Ordinance.
Confirmation of the possibility of such a proceeding is contained in the ruling of the Provincial Administrative Court (WSA) in Warsaw of April 27, 2009, file no. III SA/Wa 94/09, in which the Court indicated that “The need to have a certificate confirming the taxpayer’s tax residence for the period in which the payment was made also applies to proceedings to establish an overpayment. Whether the tax has been overpaid or was undue should be assessed as at the date of payment of the receivables on the titles listed in Art. 21.1 and Art. 22 of the Code of Civil Procedure. It is important whether on that date the taxpayer had a tax residence entitling it not to collect the tax”.
If the option indicated in point 1 is selected, the remitter bears the risk of tax payment with interest in the amount resulting from the decision of the tax authority. The remitter should also be aware that it is the remitter who bears the burden of proving that it has properly performed its obligations. Pursuant to Article 30 § 1 of the Tax Ordinance, a remitter who has not fulfilled the obligations set out in Article 8 is liable for tax not collected or tax collected but not paid.
Author: Michał Mika – Senior Tax Consultant