On February 14, 2022, the Director of the National Tax Inspectorate issued an individual interpretation with reference no.  0111-KDIB2-1.4010.574.2021.2.MKU on the determination of tax consequences related to acquiring end-user licenses from foreign contractors.

The company is subject to corporate income tax on all its income in Poland, regardless of earned it. In order to conduct business, the company uses various computer programs purchased from tax residents of countries with which Poland has signed an agreement on the avoidance of double taxation. Programs are acquired based on a license for the use of the computer program by the end-user.

The Applicant questioned whether, under Article 21(1) (a), the company is obliged to collect withholding tax in connection with making payments to a foreign entity that is not a Polish resident for the acquisition of an end-user license to use a computer program, if it does not have a certificate of residence. Furthermore, following Article 21 (1) (1), the company will be obliged to submit IFT-1/IFT-1R and IFT-2/IFT-2R information if it is considered fees for a foreign entity that is not a Polish resident are not subject to withholding tax.

Initially, attention should be paid to the so-called end-user license, which includes the rights to use a copy of a given work or work or program (Article 75 of the Act on  Copyright and Related Rights), and not the transfer of economic rights related to the modification, distribution, reproduction, public communication of the work.

In the Applicant’s opinion, the remuneration that is paid for the acquisition of the so-called end-user license for programs does not fall within the scope of Article 21 (1) (1) of the CIT Act because the company will not acquire the right to make any modifications to the programs based on the acquired license, nor to resell them further or grant further sublicenses. Therefore, it must be considered that, in the context of the transaction in question, it will acquire end-user licenses, which must be understood as the acquisition of a copy of a computer program by the end-user. In the case of acquiring an end-user license, the rights to use copyright and related rights are not transferred to the purchaser of the software. The buyer of this type of software acquires a very narrow range of rights, which boil down to using the acquired copy of the software following its intended purpose.

In the present case, there is no transfer to the Applicant of copyrights and related rights to the software, and it should therefore be considered that the remuneration paid to non-tax resident contractors Polish should not be charged in Poland with a 20% flat-rate withholding tax, so it will not fall within the scope of Article 21 (1) (1) of the CIT Act.

The interpretation shows that in a situation where the company acquires from a foreign entity that is not a Polish tax resident computer software used only for its own needs, being, in fact, the so-called end-user of the software and not making modifications to the software that cause changes to this software. It does not have to pay withholding tax in Poland from the remuneration paid to foreign service providers, regardless of whether it has a certificate of residence. Of a foreign entity and will not be obliged to submit the information in question to IFT in connection with these payments.

In summary, payments for the purchase of end-user licenses do not, in principle, constitute royalties in the circumstances in question. They do not constitute their fees, in exchange for which no copyright or rights to dispose of them concerning the subject of the license are acquired, and the buyer will not resell the subject of the license or grant sublicenses.

The Director approved a similar position of the National Tax  Inspectorate in the individual interpretation of January 13, 2022. ref. no. 0111-KDIB2-1.4010.502.2021.2.MKU. In the tax authority’s opinion, the payment of remuneration for the purchase of computer software licenses and the purchase of licenses for access to websites that are purchased for business exclusively for personal use (end-user licenses) from foreign contractors does not constitute payment for receivables subject to withholding tax.

Author: Marta Kiryczuk – Tax Consultant

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