As defined in Art. 4a(12) of the Corporate Income Tax Act, a certificate of residence is a certificate of the taxpayer’s registered office for tax purposes issued by the competent tax administration authority of the state where the taxpayer is based.
The certificate is a document that allows a Polish entity to collect tax at a lower rate, or to refrain from collecting tax, if this is permitted by double taxation agreements. To date, Polish tax authorities have been quite restrictive about what holding a certificate of residence means, and in most cases they have required the original document.
In 2019, the legislature introduced a kind of exception to this rule and allowed, under certain conditions, the possibility of using a copy of a certificate of residence. From a practical point of view, the exception to the obligation of holding an original certificate was of little importance due to the relatively low payment threshold for the use of a copy as well as restricted transaction types for which it was possible to rely on a copy. Hence, the legislature allowed the use of a copy of the certificate along with all the related benefits as long as a payment did not exceed PLN 10,000 and was for intangible services listed in Art. 21(1)(4) of the Corporate Income Tax Act.
Under the Anti-Crisis Shield Acts, the possibility of using a copy of a certificate of residence was further extended so that it could be used irrespective of the payment amount and the type of services covered by the transaction. As a result, in the circumstances related to COVID-19, taxpayers have the option of using a copy of the certificate during the pandemic and within 12 months of the state of pandemic being lifted.
The Polish Deal will significantly change the approach to copies of certificates of residence, as the amended Art. 26(1n) of the Corporate Income Tax Act will, from 1 January 2022, permit the use of a copy irrespective of the type of services that are covered by the transaction or its amount. The requirement which remains unchanged by the Polish Deal is to ensure that a certificate of residence does not raise any doubts as to it being consistent with the actual state of affairs.
It seems that in practice, it is best to check whether a certificate of residence is consistent with the actual state of affairs by comparing the registered office for tax purposes specified in the certificate with the details of the registered office disclosed in the entrepreneurs’ entries in online registers. Where there is no discrepancy in the information thus obtained, one can use a copy of the certificate and take advantage of the benefits that arise from holding it.
The change in the legislature’s ossified approach to the form of a certificate of residence should definitely be viewed in a positive light. Thanks to this, a number of businesses cooperating with companies like Google, Facebook or Microsoft will be able to minimise the risk related to withholding tax, which is currently generated by the impossibility of obtaining the original document and the fact that the certificates downloaded from these companies’ websites are questioned by tax authorities.
Author: Agnieszka Piętak, Accounting Area Manager at MDDP Outsourcing.