Taxpayers, whose headquarters or management are in Poland, are subject to the Polish corporate income tax (CIT) on all of their income, regardless of where they have residency (unlimited tax liability). Only one of these two conditions must be met for unlimited tax liability to apply. Thus, if a company is formally registered abroad, but its management board is, in fact, headquartered in Poland, then this company will still be subject to taxation in Poland on all of its income, irrespective of the country in which it was earned. Furthermore, where such companies are concerned, any tax optimization schemes will be deemed ineffective and may result in tax arrears in Poland.

The condition of having a board of directors within the territory of Poland not only refers to the seat of the governing body or headquarters, but also encompasses the location where the high level officers direct, control, coordinate, and manage the business activities and assets (“nerve center”).

The Ministry of Finance explained in one of the recent warnings MF warning: foreign holding structures to become Polish? that setting up a board is not just a formality. The assessment in determining the place of management of such an entity should not depend solely on a document or a resolution that was signed outside of Poland by the company’s governing body. More telling will be whether the circumstances surrounding a document signed in a foreign country actually indicate that the decision-making process will be performed abroad.

Circumstances indicating where the company’s decision-making process takes place include, but are not limited to, the following: e-mail correspondence (work), meeting places with employees, contractors, advisors, buyers or suppliers, proof of residence in another country such as costs related to travel or flights, as well as a member of the governing body renting or owning a flat abroad.

Important decisions made by the management board as well as decisions made in the regular course of business must be taken into account. For example: whereto is the company outsourcing? wherefrom are instructions given to the company’s employees? wherefrom does the company place orders to its contractors? and where are the company’s employees and contractors located?

Where the management board members perform their management functions may also be telling. For example, does any member of the governing body have a permanent office or other place of business abroad for the purpose of performing the service? If so: do they manage any attendant staff? is it merely a formal address used in parallel by many unrelated entities? or is the board member ever present at this foreign address during regular business hours?

It should also be taken into consideration that it is possible to make economic decisions by means of electronic communication. In other words, the place of management does not necessarily have to be permanent and decisions can be made in various places around the world or even while traveling. However, in determining where these decisions are actually made, it is also important to consider, where professional staff actually prepared such decisions, as well as where data was collected, processed, or analyzed for the purpose of those decisions.

The place of management will be determined on an individual basis by the regulatory authorities, which have the authority to consider all available evidence in making their decision.

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The following publication written by Magdalena Zalewska is an English version (translation) of a warning against the use of Foreign Entities for aggressive corporate income tax (CIT) optimization issued by the Ministry of Finance on June 12, 2017 (source: www.mf.gov.pl).