Publication date: June 18, 2025
What is the flat-rate tax.
Lump sum taxation of income is described in the Corporate Income Tax Act of 15 February 1992. According to Article 19 of the Polish CIT Act, the lump sum tax rate is 19% of the tax base, unless the Act provides otherwise. The Act also indicates that the dividend tax rate is 19% of the revenue (income) obtained.
The relationship between the taxpayer and the tax office in the event of a tax overpayment dispute
According to art. 75 of the Tax Ordinance, a taxpayer may question the validity of the withholding of tax by the payer or the amount of the withheld tax. In order to exercise their right, the taxpayer should file an application to establish overpayment of tax. Overpayment is considered to be the amount of overpaid or unduly paid tax or tax collected by the payer unduly or in an amount higher than that due and other cases specified in the Act. An appeal against a tax decision may be filed to the second instance, in accordance with art. 220 of the Tax Ordinance. In turn, a complaint may be filed against administrative decisions to the administrative court in accordance with art. 3 §2 item 1 of the Tax Proceedings Act.
Facts in the judgment of the Voivodship Administrative Court in Lublin (case ref. I SA/Lu 242/24), decision of the Director of the Fiscal Administration Chamber and the provisions applied
The decision of the Director of the Tax Administration Chamber was appealed by the party, taxpayer “A”. The decision concerned the determination of an overpayment of flat-rate corporate income tax in the amount of PLN 280,000.00 and the refusal to determine an overpayment of flat-rate corporate income tax in the amount of PLN 100,000.00 in connection with the payment of dividends by payer “B”. The justification of the decision stated that the taxpayer is not subject to effective taxation in the scope of the dividend paid, therefore he cannot take advantage of the exemption contained in art. 22 sec. 4 of the Act of 15 February 1992 on corporate income tax:
Income from participation in the profits of legal persons referred to in art. 7b sec. 1 item 1 letters a, f and j [income of capital companies may consist of dividends, balance sheet surpluses in cooperatives, the equivalent of the profit of a legal person and a company allocated to increasing its share capital or the value of undistributed profits in the company and the value of profit transferred to capital other than the share capital in the company being transformed] is exempt from income tax, with the exception of income earned by the general partner from participation in the profits of the company referred to in art. 1 sec. 3 item 1 [limited partnerships and limited joint-stock partnerships if they have their registered office or management board in the territory of the Republic of Poland] if the following conditions are met:
a/ the payer of dividends and other revenues from participation in the profits of legal persons is a company having its registered office or management board in the territory of the Republic of Poland;
b/ the entity obtaining income (revenue) from dividends and other revenues from participation in the profits of legal persons referred to in point 1 is a company subject to income tax on its entire income in the Republic of Poland or in a Member State of the European Union other than the Republic of Poland or in another country belonging to the European Economic Area, regardless of where it is earned;
c/ the company referred to in point 2 directly holds no less than 10% of the shares (stocks) in the capital of the company referred to in point 1;
d/ the company referred to in point 2 does not benefit from exemption from income tax on all of its income, regardless of the source of such income.
However, it was indicated that the taxpayer is subject to Article 10 paragraph 2 point b of the Convention between the Republic of Poland and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
a/ (…)
b/ 5% of the gross amount of dividends if the actual beneficiary of the dividends is a company (other than a partnership) which directly holds no less than 10% of the capital of the company paying the dividends (…)
On the basis of this regulation, an overpayment of up to PLN 280,000.00 was established. From the evidence collected in the appeal proceedings, the Director of the Fiscal Administration Chamber indicated that the Dutch company “C” received a dividend paid by the Polish company “B” in the amount of PLN 1,300,000,000. Due to the dividend paid, the payer withheld the flat-rate corporate income tax referred to in art. 22 sec. 1 of the CIT Act in the amount of PLN 247,000,000:
Income tax on dividend revenues and other revenues (income) from participation in profits of legal persons having their registered office or management board in the territory of the Republic of Poland, as specified in art. 7b sec. 1 item 1, is set at 19% of the revenue (income) obtained.
The taxpayer who received the dividend was a tax resident of the Netherlands and is subject to income tax in the Netherlands on all of its income, regardless of where it was earned. In the opinion of the appeal body, the Dutch company “C” is the actual owner of the dividend. The dividends received are also consolidated with income earned from other sources and then allocated for purposes specified by management decisions. It was also indicated that the taxpayer holds 100% of the payer’s shares.
The authority stressed that, in accordance with Article 22, Section 4, Item 4 of the Polish CIT Act, a company cannot benefit from the exemption from income tax on its entire income, regardless of the source of its generation. For this reason, both the subjective and objective exemption concerning the income generated by a given entity from holding shares in subsidiaries and financial income disqualifies such an entity from the possibility of using the privileges resulting from both national and EU regulations.
As indicated by the Dutch tax authorities, the income earned by the Dutch company “C” from the dividend paid by the subsidiary (payer) is not actually subject to effective corporate income tax. This results from the statutory exemption of this type of income (revenue) under Dutch law. Under Dutch law, a company may be exempt from paying tax in a situation where all income is generated in connection with the holding of shares. The condition for using the exemption is that the Dutch company holds more than 5% of the shares in the actually paid-in capital of the subsidiary. This applies to a foreign subsidiary, provided that:
The authority therefore assumed that company “C” cannot be considered to be subject to effective taxation in the Netherlands, since, as indicated above, it is subject to tax exemption. For this reason, company “C” does not meet the requirement specified in Article 22 paragraph 4 item 2 of the CIT Act.
In accordance with Article 75 of the Tax Ordinance, the taxpayer filed an application to establish a tax overpayment.
If a taxpayer questions the validity of the tax being collected by the payer or the amount of tax collected, they may submit an application to establish a tax overpayment.
And basically the essence of the dispute is the interpretation of Article 22 section 4 of the Personal Income Tax Act.
The court positively assessed the considerations made by the authority, agreed with the arguments presented by the authority and dismissed the company’s complaint as unfounded.