Month: May 2025

Position of the tax authorities

On 16 February of this year, the Director of the National Tax Information issued interpretation no. 0112-KDIL2-1.4011.928.2020.2.MKA. The case concerned a Polish citizen employed in the United Kingdom. The applicant would come to Poland for a few weeks’ holiday. He had a registered business here involving the rental of two premises. According to the applicant, however, his centre of vital interests had been in the United Kingdom for years. He claimed that the income he earned in the UK was not subject to taxation in Poland. The Director of the National Tax Information stated that since the applicant lives permanently and works in the UK, moved there from Poland with his whole family, and has owned a house there since 2012, the condition of having a place of residence on the territory of Poland, as mentioned in Article 3(1a) of the Personal Income Tax Act, was not met.

The new interpretation is good news for all Poles whose centre of vital interests is abroad, but who for various reasons earn some income in Poland.

How to determine tax residence?

In order to be subject to unlimited tax liability (Polish tax residence), a person must have their centre of personal or economic interests on Polish territory, or the person’s stay in Poland must exceed 183 days during the tax year. Fulfilment of either of these conditions results in the individual being recognised as having a place of residence on the territory of the Republic of Poland within the meaning of Article 3(1a) of the above-mentioned Personal Income Tax Act.

Pursuant to Article 3(2a) of the said Act, individuals who do not have a place of residence on the territory of the Republic of Poland are subject to tax liability only on income (revenue) earned on the territory of the Republic of Poland (limited tax liability).

 

Conditions for the centre of vital interests

From the facts presented, it follows that the applicant, together with his wife, has been living permanently and working in the United Kingdom since xx June 2010. Since 2012, the applicant has owned a house in the UK and has been repaying a loan taken out for that house. This house is the applicant’s permanent place of residence. From the beginning of his stay in the UK, the applicant lived there with his wife and three sons. Currently, the applicant lives with his wife and one of his sons. The applicant has been visiting Poland for 2 or 3 weeks a year since 2010. On xx April 2019, the applicant was granted UK resident status. Since that date, the applicant has been recognised as a UK resident for tax purposes as well. The applicant is employed in the UK under a full-time contract.

Accordingly, in this case the applicant cannot be considered a Polish tax resident, and therefore the applicant will not be obliged to pay tax in Poland on income earned from work carried out in the United Kingdom.

The subject of the Supreme Court’s analysis was a controversial ruling by the District Court in Warsaw, which held that the company’s president is not liable for failing to file for bankruptcy on time if the company’s creditors do not demonstrate a decrease in the value of the enterprise or the extent of their loss, either quantitatively or as a percentage. In the ruling of 12 March 2021 (case reference I CSKP 49/21), the Supreme Court ruled that Article 373(2) of the Bankruptcy Law (hereinafter: the “Bankruptcy Law”) does not require a percentage or quantitative determination of the decrease in the economic value of the enterprise or the extent of harm suffered by creditors.

 

Facts of the case

Przedsiębiorstwo Handlowe V. sp. z o.o. with its registered office in T. filed a motion to impose a ban on A. R., who was the president of the management board of S. sp. z o.o. in P., from conducting business on his own behalf and from holding the positions of member of the supervisory board, representative, or proxy in a commercial company, state enterprise, cooperative, foundation, or association for a period of ten years pursuant to Article 373(1) of the Bankruptcy Law (consolidated text: Journal of Laws 2020, item 1228, as amended; hereinafter: “Bankruptcy Law”). It was indicated, in particular, that S. sp. z o.o. in P. failed to meet its due obligations towards the applicant and other creditors.

 

Judicial proceedings

The District Court in W. by decision of 17 November 2016 ruled to deprive the participant for 3 years of the right to conduct business on his own account or within a civil partnership and to hold the position of member of the supervisory board, audit committee, representative, or proxy of a natural person conducting business in that activity, commercial company, state enterprise, cooperative, foundation, or association, dismissed the motion in other respects, and determined that the participant shall bear all the costs of the proceedings, leaving the detailed calculation of those costs to the court clerk at the District Court in W. It was established that the participant has been the president of the management board of S. sp. z o.o. with its registered office in P. since 27 April 2015. On the date of the motion, the company had arrears towards many creditors, including public entities, legal persons, and natural persons.

The District Court held the view that although the obligation to file a bankruptcy petition arose before the participant assumed the position of president of the management board, due to the failure to file this petition, the obligation was current and rested on the participant as the subsequent president of the management board, who was aware of the outstanding due debts. It found that the participant was at fault for failing to file the bankruptcy petition within the deadline. The participant’s conduct was characterised by negligence consisting of a failure to exercise due diligence.

The participant filed an appeal against the District Court’s decision.

The Regional Court in W., by decision of 26 July 2018, amended the contested decision in points 1 and 3 and dismissed the motion, rejected the appeal in other respects, and ordered the applicant to pay the participant PLN 100 in costs of the appeal proceedings. It shared the factual findings made by the District Court.

A cassation complaint was filed against the above ruling.

The Supreme Court sided with the company, overturning the decision of the second instance court and remitting the case for reconsideration. According to the Supreme Court, the objection of infringement of Article 373(2) of the Bankruptcy Law was well-founded. It must be agreed with the appellant that this provision does not require a percentage or quantitative determination of the decrease in the economic value of the enterprise or the extent of harm suffered by creditors. In particular, this does not follow from the Supreme Court’s case law on the interpretation of Article 373(2) of the Bankruptcy Law (see especially the decision of 30 June 2020, III CZP 61/19, Supreme Court Bulletin – IC 2020, nos. 7–8, and the case law cited therein). It should also be emphasised that the Regional Court in its justification of this decision expressed numerous reservations regarding the failure of the District Court to demonstrate the prerequisites for issuing a ban on conducting business as specified in Articles 373(1) and (2) of the Bankruptcy Law. The Regional Court also expressed reservations regarding the failure of the applicant to demonstrate these prerequisites in accordance with the burden of proof resting on it (Article 6 of the Civil Code). It might therefore seem that in this situation the Regional Court should have issued a cassatory rather than a reforming decision. The appellant’s cassation complaint contested the Regional Court’s position concerning the failure to meet the prerequisites for imposing the ban specified in Articles 373(1) and (2) of the Bankruptcy Law. This issue will require clarification upon reconsideration of the case.

The Supreme Court, in its resolution dated 15 September 2020, case no. III CZP 87/19, ruled that a claim to declare a standard contractual term non-binding on the consumer (art. 385¹ of the Civil Code) is neither identical with nor encompassed by a claim to declare the contract invalid (art. 58 of the Civil Code). It thereby resolved the legal question submitted by the Court of Appeal:

“Whether, in a case between a consumer and a bank concerning the declaration of invalidity in full of a mortgage loan agreement formally concluded in a foreign currency (Swiss francs) but disbursed and repaid in Polish zlotys, the court in appellate proceedings—where it has been established that some contractual terms constitute unfair contractual terms within the meaning of art. 385¹ of the Civil Code—may, pursuant to art. 321 § 1 of the Code of Civil Procedure, rule that only certain contractual provisions (and not the entire contract) are ineffective or invalid?”

Facts of the case

The claimants applied for the entire mortgage loan agreement, which they as consumers had concluded with the bank, to be declared invalid pursuant to art. 58 § 1 of the Civil Code, due to its conflict with art. 69 sections 1 and 2 of the Banking Law, and arts. 358, 353¹, and 385¹ of the Civil Code.

By the judgment of 28 February 2019, the Regional Court dismissed the claim. The Regional Court held that the contract between the parties was not affected by defects that could render it invalid under art. 58 § 1 of the Civil Code. Although the provisions of the contract concerning the sale rate of the franc were ambiguous and did not specify the amount of the currency spread applied by the defendant, and clauses included in the general terms of the contract could be used by the defendant in an arbitrary and discretionary manner, the abusiveness of such a standard contract clause may apply to indexed loans to a foreign currency, where the indexing clause constitutes a type of valuation clause. The case concerned a denominated loan.

Proceedings before the appellate court

The Court of Appeal indicated it must assess whether, after eliminating abusive provisions, the loan agreement binding the parties still contains all the elements necessary to determine the content of the legal relationship between the parties, in particular whether it is possible to establish the loan amount in Polish zlotys, the loan term, repayment dates, and the amount of debt. The elimination of an abusive clause related to the conversion of the obligation into another currency than Polish does not lead to the collapse or invalidity of the contract in the remaining scope nor to changes in the amount or terms of interest on the loan. This means that despite excluding all ties to another currency than Polish, the loan remains interest-bearing according to the LIBOR rates usually applied for the Swiss franc. It is irrelevant that the bank would probably not have set the interest rate on a Polish zloty loan according to the LIBOR rate if it had been aware of the abusiveness of the valuation clause. The criterion of the hypothetical will of the parties, irrelevant when assessing contract clauses and consequences of their invalidation under art. 385¹ of the Civil Code, could have significance if the contractual provisions between the parties were assessed under art. 58 § 3 of the Civil Code.

According to the Court of Appeal, there is a doubt whether, having been convinced of the validity of the contract binding the parties after removing abusive provisions, it may—given that the claimants submitted exclusively a claim for declaring the contract invalid—rule only on the invalidity or ineffectiveness of abusive provisions or only some of them. The source of this doubt is that the court must identify abusiveness of contract clauses ex officio and apply the proper legal consequences ex officio in relation to the legal relationship governed by the contract. By analogy a maiori ad minus, it can be inferred that within a claim for declaration of invalidity, it is included that only some contractual provisions may be invalid. However, this reasoning does not seem applicable in cases where consumers pursue claims connected with the entrepreneur’s introduction of abusive clauses into the contract template.

Proceedings before the Supreme Court

The Supreme Court noted that articles 385¹–385³ of the Civil Code, under which the courts of merits examined the clauses contained in the loan agreement concluded by the parties, were introduced to implement Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 1993 No 95, p. 29), which became applicable in Poland on 1 May 2004. This Directive, amended several times, obliges Member States to set general criteria for assessing unfairness of contract terms, listing exemplary terms to be regarded as unfair, and requires the creation in national law of a system of consumer protection measures against entrepreneurs imposing unfair terms in contracts without individual negotiation. Directive 93/13 establishes minimum requirements for the consumer protection system. Its implementation aims to ensure that consumer contracts are drafted in plain and understandable language, and the consumer has an actual opportunity to become acquainted with all terms before concluding the contract, with doubts in their application interpreted in favour of the consumer. Unfair clauses contained in the contract will not bind the consumer, ensuring, however, that the contract remains binding between the parties if it can still operate after excluding unfair terms (art. 6 of Directive 93/13).

The legislator, implementing the Directive, in art. 385¹ § 2 of the Civil Code, defined the consequences of introducing an unfair contractual term. It provides that the sanction is ex lege ineffectiveness of the unfair provision, assuming that provisions defining the main performance of the parties are subject to abusiveness control only when not formulated unequivocally. Other contractual provisions are subject to such control whenever the court knows they were concluded between an entrepreneur and a consumer. Pursuant to art. 385¹ § 2 of the Civil Code, if the unfair term does not bind the consumer, the parties remain bound by the contract in other respects. In principle, abusiveness of some contractual provisions does not imply invalidity of the contract. A finding that a contractual provision has the characteristics under art. 385¹ § 1 of the Civil Code and is subject to the sanction under art. 385¹ § 2 excludes the application of art. 58 § 3 to the contract and that provision. It is, however, beyond doubt that if exclusion of the unfair term deforms the contractual framework to the extent that rights and obligations of the parties cannot be reconstructed, the parties cannot be bound by the remaining part of the contract.

Invalidity of provisions is not the same as invalidity of the contract

That a claim for declaration of ineffectiveness of a contract or invalidity of only some of its provisions is not included in a claim for declaration of contract invalidity follows from differences between factual circumstances which justify a declaration that the parties did not validly conclude the contract, and those circumstances which justify only the invalidity or ineffectiveness of some contract provisions. More importantly, these judgments lead to entirely different consequences in substantive law concerning the rights and obligations of the parties. Contract invalidity releases the parties from the obligation to perform it, but entails other types of settlements than those based on a contract where only some provisions are invalid or ineffective.

Consequences

The ruling applies to cases related to loans indexed or denominated in Swiss francs or other foreign currencies. The court noted that the principle that courts are bound by the claim in the lawsuit means that already at the commencement of proceedings the subject matter can be specified, directing procedural actions to clarify circumstances materially relevant to the case and making the proceedings predictable for the defendant. This principle is therefore important not only for the court but also for the defendant, enabling them to prepare for trial, understand the consequences the claimant derives from the facts related to the defendant, and mount an appropriate defence. This has special importance in Swiss franc-related cases and provides grounds for the court not to grant a claim declaring a Swiss franc loan agreement invalid solely on account of abusive provisions contained therein.

On 16 February 2021, the Supreme Court issued a resolution stating that a party who, in performance of an invalid loan agreement, repaid the loan is entitled to a claim for the return of the repaid monetary funds as an undue benefit (Article 410 § 1 in connection with Article 405 of the Civil Code), regardless of whether they are the bank’s debtor for the return of the unduly received loan amount. Case reference number of the resolution – III CZP 11/20.

 

Dispute over the loan in Swiss francs

The case concerned a borrower’s claim for the return of monetary payments made as instalments of a loan in Swiss francs, which was deemed invalid (due to abusive clauses included in it). The district court upheld the claim only regarding the principal amount, which was also the difference in the loan repayment.

However, the dispute was brought before the appellate court, which expressed doubts whether, in light of Articles 405 and 409 of the Civil Code, in the case of declaring an indexed loan agreement invalid due to abusive clauses, where unjust enrichment occurs on both sides of the contract, the borrower can effectively demand from the bank the return of payments made in the form of capital and interest instalments in Polish currency or foreign currency, when the borrower has not returned the nominal amount of the loan disbursed by the bank.

The regional court accused the first-instance court of applying an incorrect method of dispute resolution. The district court adopted the so-called “balance theory”, according to which, in the case of an invalid bilateral contract, the subject of the restitution claim is not each of the fulfilled performances separately, but only the surplus of one over the other; the individual reciprocal performances serve only as accounting values (they are not subject to the principle of enrichment actualisation), resulting in only one restitution claim, and the debtor is the party to whom that surplus (positive balance) accrued (and was not subsequently lost).

According to the appellate court, claims of the bank and the borrower should be treated as independent (according to the so-called theory of two condictions). The regional court noted that applying the balance theory could conflict with the objectives of the invalidity sanction, which aims to eliminate the legal and factual effects of concluding a contract with ex tunc effect. Furthermore, the court noted that Articles 497 and 496 of the Civil Code indicate that even in the case of an invalid bilateral contract, the legislator treats each claim arising from these legal events separately, only granting a right of retention as a guarantee that each undue performance will be returned.

Position of the Supreme Court

The Supreme Court adopted a resolution that when a contract is invalid, the party who repays the loan is entitled to a claim for the return of the paid monetary funds as an undue performance (Article 410 § 1 in connection with Article 405 of the Civil Code), regardless of whether and to what extent they are a debtor of the bank for the unduly received loan amount.

According to the court, Article 410 § 2 of the Civil Code implies that a performance rendered in execution of an invalid obligation is – subject to so-called validation cases – an undue performance and thus, pursuant to Article 410 § 1 in connection with Article 405 of the Civil Code, is subject to return as a property benefit obtained unjustly at the expense of the performer, generally without the need to determine whether and to what extent the performance enriched the recipient, or whether the performer’s assets decreased. The mere fact of performing the service fulfils the criterion of impoverishment on the part of the performer, and obtaining that performance by the recipient fulfils the criterion of enrichment.

According to the court, in the case of an invalid loan agreement, the undue performance should primarily be qualified as the transfer by the bank of monetary funds to the prospective borrower, who pursuant to Article 410 § 1 in connection with Article 405 of the Civil Code becomes obliged to return them, with the enforceability of this obligation depending on the unjust enrichment recipient’s summons to return the funds pursuant to Article 455 of the Civil Code.

The Supreme Court in its resolution put an end to the so-called “balance theory”, stating that it lacks statutory justification. The court emphasised that the balance theory was not intended as an alternative to set-off for simplifying the settlement of performances under reciprocal or bilaterally binding contracts, nor as protection of one party of a prospective contract from insolvency of the other, nor as protection from earlier limitation of one party’s claim. Such needs are basically met by other civil law institutions, whose application generally requires a decision and activity by the party to whom they have been entrusted.

Opportunity for Borrowers

The Supreme Court’s decision enables borrowers of all loans (the court used the phrase “including indexed loans”) to sue banks for the return of paid performances.

Entrepreneurs affected by the coronavirus pandemic and the numerous related economic restrictions have used various aid options provided under the Anti-Crisis Shields. Due to the necessity of settling income tax, doubts arise as to which benefits are fully or partially exempt from taxation.

Financial support prepared by the government for entrepreneurs so far has included, among others, the downtime allowance, microloans and non-repayable grants, solidarity allowance, as well as subsidies for employee wages and social security contributions. Entrepreneurs can breathe a sigh of relief – most funds received under the Anti-Crisis Shields are exempt from taxation.

 

Downtime Allowances

Downtime allowances are exempt from taxation. Expenses paid with these funds may be recognised as tax-deductible costs under general rules. The catalogue of expenses that cannot be considered tax costs can be found in the PIT Act. The above rule also applies to the additional downtime allowance and the one-off additional downtime allowance. This includes downtime allowance requested in connection with work performed under a mandate contract.

 

Microloans and Non-Repayable Grants

A similar situation applies to microloans and non-repayable grants. The microloan is exempt from income tax. Pursuant to Article 15zzd(10) of the Act of 2 March 2020 on special solutions related to the prevention, counteraction, and combating of COVID-19, other infectious diseases, and crisis situations caused by them, income arising from the loan forgiveness under the terms specified in paragraphs 7 and 7a does not constitute income within the meaning of the provisions on personal income tax or corporate income tax. According to Article 15zzd(10) of the aforementioned Act, income arising from grants provided under the terms specified in paragraph 1 and in the case referred to in paragraph 13 does not constitute income within the meaning of the provisions on personal income tax or corporate income tax.

 

Solidarity Allowance

Article 14 of the Personal Income Tax Act has been amended by adding Article 52ua, which exempts the amounts of the solidarity allowance from income tax.

 

Subsidies for Wages and Social Security Contributions under Article 15gg of the COVID-19 Act

Received subsidies for wages and social security contributions are income subject to income tax. Employee wages, on the other hand, may constitute tax-deductible costs for the company.

 

More information can be found on the National Tax Information website:  https://www.kis.gov.pl/informacje-podatkowe-i-celne/najczesciej-zadawane-pytania/pit/-/asset_publisher/vH2z/content/pit-%E2%80%93-przepisy-tarczy-antykryzysowej?redirect=https%3A%2F%2Fwww.kis.gov.pl%2Finformacje-podatkowe-i-celne%2Fnajczesciej-zadawane-pytania%2Fpit%3Fp_p_id%3D101_INSTANCE_vH2z%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-2%26p_p_col_count%3D1

The issue of corporate groups has long been a subject of discussion among lawyers specialising in commercial and economic law. There is no doubt that there remain matters that should find their place in statutory regulations. The amendment to the Commercial Companies Code and other acts proposed by the Ministry of State Assets regarding this issue is the subject of lively debate about the introduced regulations. The amendment in progress, introducing provisions concerning corporate groups, i.e. so-called holding law, introduces the concept of a joint economic strategy, which aims to enable a focus on the interest of the entire corporate group, moving away from the absolute primacy of acting solely in the interest of the individual company, and the institution of issuing binding instructions as a mechanism to ensure the implementation of the joint strategy. The latest changes that may soon come into force are discussed below.

 

Statutory definition of a corporate group

According to the proposed regulation, a corporate group means: “a parent company and one or more subsidiaries, guided – pursuant to the agreement or statute of each subsidiary – by a joint economic strategy (the interest of the corporate group), enabling the parent company to exercise unified management over the subsidiary or subsidiaries.”

Introducing the concept of a joint economic strategy changes the approach to managing companies within the group. Until now, the management board’s duty was solely to act in the company’s interest. The proposed changes assume, alongside acting in the company’s interest, also acting in the interest of the entire corporate group, provided this does not violate the justified interests of creditors and minority shareholders of the subsidiary.

 

Issuing binding instructions to a subsidiary by the parent company

The discussed amendment provides for the possibility for the parent company to issue binding instructions to a subsidiary, which would be the primary instrument ensuring the execution of the joint economic strategy.

Execution of a binding instruction by a subsidiary will require a prior resolution of the management board, which is intended as a safeguard against adverse effects on the company. According to the proposed amendment, the resolution will be adopted if it does not violate the interests of the subsidiary or if it can reasonably be assumed that any loss incurred by the subsidiary due to executing the parent company’s instruction will be remedied in due course by the parent company or another company within the corporate group. When adopting the resolution, the benefits gained by the subsidiary from being part of the corporate group in the last two financial years should also be considered.

Refusal to execute a binding instruction will only be possible in strictly defined cases. The first case assumes that a subsidiary in a group where the parent company directly or indirectly holds at least 75% of the share capital may refuse to comply only if executing the instruction would lead to insolvency or threatened insolvency of the subsidiary. The second case of refusal concerns a subsidiary where the parent company directly or indirectly holds less than 75% of the share capital and there is reasonable concern that the instruction is contrary to the subsidiary’s interest and will cause damage that will not be remedied by the parent company or another subsidiary in the group, and if this adverse circumstance threatens the subsidiary’s continued existence. An exception is a wholly owned subsidiary, which cannot refuse to execute the instruction.

 

Liability of the parent company for issuing binding instructions

The parent company may be held liable for issuing a binding instruction if its execution leads to the insolvency of a subsidiary in a group where the parent company directly or indirectly holds at least 75% of the share capital. It will also be liable towards the subsidiary for any damage caused, unless it is not at fault. The articles of association or statute of a wholly owned subsidiary may exclude the parent company’s liability.

The parent company will not be held liable for insolvency if it acted within justified business risk based on information, analyses, and opinions that should have been taken into account in making a diligent assessment under the circumstances.

The parent company’s liability under the current draft amendment is weakened by introducing the concept of fault, which in its current understanding seems quite difficult to establish, and the possibility of excluding liability in the case of a wholly owned subsidiary also raises concerns about the rationale of the introduced changes. It should be assumed that, given the strong position of the parent company, it should bear greater responsibility for the actions of subsidiaries resulting from executing binding instructions.

 

The right of the parent company to buy out shares of a subsidiary

A parent company holding at least 90% of the share capital of a subsidiary within the corporate group will be able to demand the buyout of shares held by a shareholder of that subsidiary. If it holds less than 90% but more than 75% of the share capital, the right to buy out shares or stakes will depend on an appropriate provision in the parent or subsidiary’s articles of association or statute.

The counterpart of this right for minority shareholders is the ability to demand the buyout of their shares or stakes if the parent company holds at least 90% of the subsidiary’s share capital.

The introduction of these rights will help ensure the durability of the corporate group and strengthen the position of the parent company. This right is a powerful tool directed at minority entities, who may at any time be “bought out” by the parent company without even their consent or a resolution of the subsidiary’s governing body being required.

 

 

Summary

The Ministry of State Assets has repeatedly postponed the date of entry into force of the amendment to the Commercial Companies Code introducing new provisions called holding law. At present, the bill is still under consultation, although earlier announcements indicated it would have been introduced last year. Despite the protracted procedure, we can expect that the bill will finally reach the Sejm and be enacted, introducing the mentioned institutions.

The way the issue of corporate groups is regulated seems significantly favourable to managers of the parent company, who will gain tools for efficient control of the entire corporate group. The situation of shareholders or members of subsidiaries seems much less favourable, as many experts see the proposed changes as prejudicing minority rights. Subsidiaries that, due to executing binding instructions, breach their interests—potentially leading to a decline in share value—may harm their shareholders or members.

 

In the era of the pandemic, more and more companies are opting to switch to remote work. It is not uncommon to encounter a situation where an employee working remotely for a Polish company is located outside the country. Are they allowed to do so, and more importantly, what consequences does this have for the employer?

The statutory definition of remote work is contained in Article 3(1) of the Act of 2 March 2020 on special solutions related to preventing, counteracting, and combating COVID-19. An employer may instruct an employee to perform, for a specified period, work defined in the employment contract outside the place of its usual performance. As a rule, there is nothing preventing an employee from working abroad. However, the legality of such action does not mean that the employer has nothing to worry about. The place of work performance is significant when it comes to payroll and other employment-related settlements and, in extreme cases, may lead to the necessity to tax the company’s profits abroad (so-called tax establishment).

The biggest challenge is the possibility of the employee being subject to foreign legislation in terms of calculating and remitting income tax advances, determining which law applies for social security purposes, and the amount of contributions due. This is especially risky when the employee is in a country with which Poland has not concluded a double taxation avoidance agreement. In such a case, the employee will be subject to taxation from the first day of stay during which work is performed. As a rule, the employer should then suspend withholding income tax advances in Poland or apply the appropriate double taxation avoidance method.

In the case of work in EU countries, tax authorities generally consider an employee a tax resident if they stay in a given country for more than 183 days in a tax year. This exposes the employer to the obligation to pay income tax abroad.

More about what determines an employee’s tax residency: Tax residency: how to protect yourself from double taxation?.

Temporary work abroad may trigger the application of EU rules on posting workers within the framework of service provision. Consequently, the employer may be obliged, for example, to pay wages in accordance with the conditions applicable in the country of the employee’s current stay or to fulfil a range of administrative obligations, failure to meet which on time may result in administrative penalties in another country.

Although there are no clear prohibitions in the regulations, the doctrine has an ongoing dispute regarding the employee’s free choice of the remote work location. It is beyond doubt that an employee may perform remote work at a place of residence or permanent stay known to the employer. However, failure to inform the employer about a long-term stay abroad poses significant risks to the employer related to tax, social security, and other formalities dependent on the given country.

Offer: Labour Law – Warsaw Law Firm

Employee Abroad – A Lifeline for Employers

Unfortunately, to protect their interests, employers will have to “replace” the legislator by taking care of their own interests. The most common practice is to obtain declarations from employees, in which they commit not to perform work abroad (or outside the EU) or not to stay abroad for more than 183 days in a tax year. More cautious employers regulate these issues in work regulations.

However, it should be remembered that the Labour Code limits the employee’s liability for damages, and if the employee breaches their obligation causing tax or contribution liabilities abroad, the employer will bear the responsibility. Under the current legal framework, there are no regulations that fully protect entrepreneurs from this risk.

Content of the Draft

The Constitutional Tribunal has examined the constitutionality of Article 8(2a) of the Act on the Social Insurance System. According to this provision, a person performing work under an agency agreement, a mandate contract, another contract for the provision of services, or a contract for a specific task shall also be considered an employee within the meaning of the system act, provided that such contract was concluded with the employer with whom the person is in an employment relationship, or if under such contract the person performs work for the employer.

Employers’ organisations submitted applications on this matter to the Tribunal in 2015–16. Their content concerned the consequences of the aforementioned regulation for the employer, namely granting them the status of a contribution payer for a civil law contract concluded with a third party.

According to the Tribunal, this regulation is consistent with the principle of sound legislation derived from Article 2 of the Constitution of the Republic of Poland. Referring to the Supreme Court’s case law, the Tribunal also confirmed that the essence of the challenged regulation is the protection of workers’ rights and the prevention of employers circumventing the law by transferring employees to another company that would conclude a mandate contract (exempt from contributions) or a contract for a specific task (not subject to insurance obligations), under which the employee would perform the same duties for the employer as under an employment contract. The Constitutional Tribunal did not share the Applicants’ objections that the challenged provision does not correspond to the legislator’s intended objectives, considering the claims of violation of the principle of sound legislation due to the provision covering a broader range of cases than assumed by the legislator to be unfounded. The Tribunal also added that the provision is clear and precise enough to enable the addressees to determine the scope of their obligation. A consistent line of case law of the Supreme Court and common courts allowed resolving interpretative doubts arising from the challenged regulation using commonly accepted methods of interpretation.

Note for Employers

In light of the above ruling, entrepreneurs should be aware that contracts concluded by their employees with third parties, under which they provide services for their employer, do not exempt them from the obligations of a contribution payer and thus expose them to double liability towards employees and the Social Insurance Institution. Also, in the case of mandate contracts, such income must be reported along with income from employment in the monthly individual report submitted for the employee by the employer.

Content of the Application

The Constitutional Tribunal has addressed the issue of the constitutionality of Article 8(2a) of the Act on the Social Insurance System. According to this provision, a person performing work under an agency agreement, contract of mandate, another contract for the provision of services or a contract for specific work is also regarded as an employee within the meaning of the system act if the contract is concluded with an employer with whom the person has an employment relationship, or if under such a contract the work is performed for the employer.

Employer organisations submitted applications on this matter to the Tribunal in the years 2015–2016. Their content concerned the consequences of the above-mentioned regulation for the employer, specifically the imposition of the status of contribution payer in respect of a civil-law contract concluded with a third party.

According to the Tribunal, the provision complies with the principle of proper legislation derived from Article 2 of the Constitution of the Republic of Poland. Referring to the case law of the Supreme Court, the Tribunal also confirmed that the essence of the challenged regulation is the protection of employee rights and the prevention of employers circumventing the law by transferring employees to another company which would conclude a contract of mandate (subject to contribution exemption) or a contract for specific work (not subject to insurance contributions), under which the employee would perform the same duties for the employer as those under the employment contract. The Constitutional Tribunal therefore did not share the Applicants’ objections that the challenged provision does not fulfil the legislator’s intended purpose, considering the allegations of a breach of the principle of proper legislation—namely the inclusion within the scope of the challenged provision of a broader range of cases than originally intended—as unfounded. The Tribunal also stated that the provision is sufficiently clear and precise to allow its addressees to determine the scope of their obligations. The consistent case law of the Supreme Court and common courts has enabled any interpretative doubts concerning the challenged provision to be resolved using commonly accepted methods of statutory interpretation.

Note for Employers

In light of the above ruling, entrepreneurs should be aware that contracts concluded by their employees with third parties, under which they provide services to their employer, do not relieve them of their obligations as contribution payers and therefore entail dual liability towards both the employees and the Social Insurance Institution (ZUS). Also, in the case of contracts of mandate, such income must be reported together with income from the employment relationship in the individual monthly report submitted by the employer for the employee.

On Monday, the Supreme Administrative Court (NSA) issued a resolution in a seven-judge panel regarding the taxation of lease, tenancy and similar agreements. The motion to the court was submitted by the Ombudsman for Small and Medium-sized Enterprises. The case concerned the conditions under the Personal Income Tax Act (PIT Act) determining which profits from property letting are taxed as income from business activity rather than from rental.

In the operative part of the resolution dated 24 May 2021 (case no. II FPS 1/21), the Supreme Administrative Court clarified that income earned by taxpayers from lease, sublease, tenancy, subtenancy and other similar contracts is classified without limitation as income from the source listed in Article 10(1)(6) of the Personal Income Tax Act of 26 July 1991, unless the assets have been included by the taxpayer in the assets related to their business activity.

The court held that if the taxpayer:

a) does not undertake actions aimed at clearly distinguishing an enterprise by creating an organised set of tangible and intangible components intended for that activity,

b) does not establish an organisational structure enabling the management of that separated part of the assets,

c) does not develop a strategy for the activity (plans for its development, market research to identify potential tenants’ needs, adapting the assets to those needs), but merely invests surplus funds (earned from various income sources) in the purchase of real estate (including premises) which are then rented out,

then it cannot be considered that the assets are connected with business activity.

“This is good news for entrepreneurs who lease out assets withdrawn from their business activity and tax the rental income under the lump-sum tax on registered income. The resolution prevents tax authorities from treating income from the lease of such assets as income from business activity,” commented Deputy Ombudsman Jacek Cieplak on the website of the Office of the Ombudsman for Small and Medium-sized Enterprises.