A taxpayer who intends to provide services to one counterparty under a cooperation agreement may tax the income generated at a rate of 19%, provided that the activities are carried out in a timetable established by him, he will not carry out them under the direction of the commissioning officer and, in addition, bear economic risks in connection with the work carried out. This position was taken by the Director of National Tax Information in an individual interpretation dated 18 June 2019
In the request for an individual interpretation, the applicant submitted the following future event. The applicant intends to provide advisory services to a company based in the European Economic Community, outside Poland, on the basis of a “cooperation agreement”.
The cooperation will provide services in the field of economic advice and financial planning and analysis, in particular: development of financial models and plans, ongoing analyses and forecast financial results of the company, reduction of financial risks of the business.
Services will be provided by providing periodic reports, financial analyses, presentations and advice on agreed dates. The applicant stated that he was not, is not and will not be an employee or member of the company's board.
Services shall be provided at the place of residence of the executing person or elsewhere and at any time, provided that the time limits for the provision of the services are met.
Applicants will not be entitled to any additional remuneration for any additional work and time that may be necessary as the contractor will provide services requiring high levels of trust and expertise.
The remuneration will be paid once a month in euro, which means that the contractor will bear the economic and financial risks associated with the change in the exchange rates of the national currency (PLN) in relation to the euro, so that the amount of revenue from the contract per PLN will be variable and subject to the exchange rate.
The applicant will be required to pay taxes and insurance, which will also entail financial and economic risks linked to the change of legislation and possible increase in tax and other public-law charges.
The contractor will not be entitled to an additional remuneration for additional and over-normative costs and working time required to meet the obligations arising from the contract, and will therefore bear not only economic but also organisational risks.
Accordingly, the applicant asked the following questions: whether the revenue received from the above contract should be eligible for non-agricultural business activities and whether they could be subject to a linear tax respectively.
KIS position favourable to self-employed
According to the applicant, the revenue thus obtained can be eligible for non-agricultural business activities to which the liner tax applies. According to the provisions of the PIT law, non-agricultural activities mean commercial activities:
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- manufacturing, construction, commercial, service;
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- the exploration, recognition and extraction of minerals from deposits;
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- the use of goods and intangible assets;
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- conducted in its own name, regardless of the outcome, in an organised and continuous manner.
The Director of National Tax Information considered the applicant’s position to be correct. The Authority cites the content Article 5b(1) The PIT Act, according to which we do not deal with non-agricultural economic activities if the following cumulative conditions are met:
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- liability to persons third for the outcome of these activities and their execution, excluding the responsibility for the performance of unlawful acts, shall be borne by the ordering officer;
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- they are carried out under the direction and at the place and time prescribed by the contracting authority;
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- carrying out these activities shall not bear the economic risk associated with the activities carried out.
The Director of KIS divided the applicant’s position in which he stated that the said provision would not apply in the state in question as it would not be fulfilled two of three the conditions of which it provides Article 5(1) The PIT Act – no one will direct the executing person, and no one will impose on him the place and time of performance of the obligations – while failing to meet any of the conditions causes that the activities carried out under the Personal Income Tax Act can be qualified as non-agricultural economic activity, taxed by a linear tax.
The tax ruling is used for entrepreneurs providing services to one counterparty. It is worth noting that whether a self-employed person will be able to benefit from a linear tax should be largely determined by Article 5(1) PIT Act which exhaustively lists the negative criteria for determining the activity as non-agricultural economic activity.
source: Individual interpretation dated 18 June 2019 No 0114-KDIP3-1.4011.239.2019.1.MJ
Author: Rafał Łomża. Student on the Law of the Catholic University of Lublin John Paul II. Interests in commercial company law, tax law.