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POLISH TAX AUTHORITIES CHANGED THEIR APPROACH WITH RESPECT TO FREE OF CHARGE MANAGEMENT?

2015-09-29

For a number of years, the Polish tax authorities claimed that the companies which have not paid for the performance by the members of the management board of their function, obtains free of charge benefit subject to income tax. After several court rulings favourable for the taxpayers, the approach of the tax authorities seems to start to change.

It is a frequent practice among capital groups to have a management board remunerated only from one company from the group (usually the parent company), while the remaining companies within that group do not bear the costs of management.  Applying such a scheme could have negative tax consequences for companies benefitting from such free of charge management. In particular, pursuant to the standpoint expressed by the Head of the Tax Chamber in Poznań in the ruling dated 6th August 2013 (file Ref. No. ILPB3/423-229/13-4/KS) or by the Regional Administrative Court in Gdańsk dated 16th April 2013 (file Ref. No. I SA/Gd 307/13), a free of charge use by a company of services provided by members of the management board or supervisory board is deemed as a source of income for the company, as a so called free of charge benefit. That meant that the company was obliged to report taxable income equal to the market value of the remuneration of the board member.

Following the ruling of the Supreme Administrative Court dated 4th April 2015 (Ref. No. II FSK 1094/12), the approach of the tax authorities started to change. The example of such changed approach, not requiring the companies to pay the tax on the free of charge management, is the recent tax ruling of the Head of the Tax Chamber in Katowice issued on 14th August 2015 (Ref. No IBPB-1-3/4510-91/15/APO).

In case the new approach of the tax authorities becomes the settled practice, it will be possible to resign from  arrangements with the members of the management board or/and the parent companies generating additional costs, formalities and paperwork. However, for the time being, it is recommendable to precede the decision to stop paying for the management, by obtaining of the individual tax ruling.

Related People: Tomasz Rysiak, Agnieszka Pytlas-Skwierczyńska
Related Service Areas: Tax
Related Countries: Poland

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