Planning, analysis, and software design; work on program development and its implementation; integration of the software with other systems and support for the implementation of system updates – taxation issues

Facts in the case

The complainant ran a business whose primary purpose was to produce computer programs and implement programming projects. As part of this business, based on his knowledge of information technology and experience in developing solutions related to computer program development, he accepted programming assignments for his clients. He requested an individual tax ruling from the Director of the National Tax Information Service regarding personal income tax. For the purposes of describing the factual circumstances, the complainant divided his business into individual stages, including: planning, analysis, and software design; work on program development and its implementation; integration of the software with other systems and support for the implementation of system updates. As a result of this work, computer programs were created, understood as works under Article 1 of the Polish Copyright and Related Rights Act. Considering the broad definition of a computer program, the complainant stated that each of the indicated results of the work constituted a work and was protected (Article 74 of the Copyright and Related Rights Act). According to the complainant, the software he produced was based on individual, original ideas, thus creating new applications.

The complainant raised questions regarding the classification of his activity as research and development, the classification of the paid transfer of copyright to a computer program as the sale of a qualified intellectual property right, the recognition of expenses as costs of calculating the Nexus indicator for the purposes of calculating qualified income from a qualified intellectual property right, and the applicability of the 5% tax rate to income from intellectual property rights.

Subsequently, the Director of the National Tax Information Service requested the complainant to supplement the application for an individual tax ruling, and the complainant responded by submitting written explanations. In its decision, the Director of the National Tax Information Service dismissed the application due to the complainant’s failure to address all the deficiencies in the application, upholding this decision despite a subsequent appeal. The authority indicated that the complainant had not sufficiently individualized the description of the factual circumstances and future events, covering an overly broad and open-ended period (both temporal and material). The authority also found the claim that the complainant had equated the programming assignment with a computer program incomprehensible. Furthermore, the authority emphasized that, on the one hand, the complainant expected an interpretation to be issued regarding the recognition of a portion of the services provided, systematically conducting creative work involving software development, as research and development activities.

On the other hand, however, the complainant failed to provide comprehensive information about the computer programs being created, particularly regarding a future event and providing an evaluative reference to information about their development. According to the authority, these issues prevented an assessment of the position with respect to the questions posed in the application. The complainant intended to effectively apply the application to its entire software development activity and, through an individual interpretation, to extend the “protection” provided for in the Tax Ordinance regarding preferential taxation of income (currently and likely in the future). However, the idea and function of an individual interpretation is to extend this “protection” to the interested party in relation to the specific factual situation that has arisen or will arise for them. Ultimately, the authority found that, taking into account the regulations in question and the circumstances of the case, the authority had rightly found that the application for an individual interpretation did not meet the legal requirements and that the complainant had not properly supplemented the deficiencies in the application in response to the request – in particular the factual background and a future event – in a way that would have enabled the issuance of the requested individual interpretation.

Legal Problem

The main issue in this case is whether the Director of the National Tax Information was right to find that the complainant’s application did not contain a comprehensive description of the factual circumstances of the case and future events, and these deficiencies were not remedied in response to the request – and therefore there were grounds to consider that since the application did not meet certain requirements, it should have been left without consideration?

Legal Analysis

The Provincial Administrative Court found the complaint justified. Pursuant to Article 30ca sec. 1 of the Personal Income Tax, a reduced rate applies to income earned from business activities in the scope of income from qualified intellectual property rights. According to Article 30ca sec. 2 of the Personal Income Tax, a qualified intellectual property right may be a copyright to a computer program subject to legal protection under separate provisions, created, developed, or improved as part of research and development activities. Therefore, the 5% rate may be applied to computer copyrights only when they are subject to copyright protection as a computer program. Pursuant to Article 5a sec. 38 of the Personal Income Tax, this activity may take two forms: scientific research or development work. In relation to Article 5a sec. 40 of the Personal Income Tax, the court applied the definition of development work within the meaning of Article 4 sec. 3 of the Law on Higher Education and Science, which covers the acquisition, combination, development, and use of currently available knowledge and skills. According to the case law of the Supreme Administrative Court, the body is bound by the factual circumstances or future events presented in the application. The factual circumstances provided are “binding” on the interpreting body, and they cannot be verified or modified. In the matter of issuing an individual interpretation, the body issuing the interpretation “operates” solely within the framework of the factual circumstances presented by the applicant and the legal assessment expressed by them.

Therefore, the body issuing the interpretation is, in a sense, bound by the scope of the legal issue presented by the party in the application. This is also binding on the administrative court reviewing such an administrative act.

At the same time, the applicant is obligated to comprehensively present the factual circumstances or future events (Article 14b §3 of the Tax Ordinance), so that the body can respond to the party’s position by assessing its correctness (Article 14c §1 of the Tax Ordinance). If the aforementioned description is insufficient, the authority is obligated to request the applicant to supplement it (Article 14h §1 and Article 169 §1 of the Tax Ordinance). Only if the applicant fails to supplement the deficiencies within the specified timeframe is the authority authorized to leave the application without consideration (Article 14g §1 and Article 169 §4 of the Tax Ordinance). The Court found that the allegation of infringement by the Director of the National Tax Information violated the above-mentioned provisions. According to the Court, the authority was wrong to consider the application as not individually identified, because its content clearly indicates that the Applicant precisely defined what he understood by “activity consisting in creating computer programs” and “computer program,” referring to the provisions of the Copyright Act, tax explanations, and legal literature. The authority’s statement that the activities described in the application do not always lead to the creation of a computer program is unfounded – as the Applicant assumed that each effect of his work constitutes a computer program protected under Article 74 of the Copyright and Related Rights Act. The prohibition on the authority modifying and challenging the factual circumstances described by the applicant was violated. Under Article 14k § 1 of the Tax Ordinance, the authority cannot refuse an interpretation solely because it suspects the description of the factual circumstances to be inconsistent with reality – the risk of such inconsistency is borne by the applicant. The authority wrongly expected the applicant to decide whether their activity constitutes research and development within the meaning of Article 4, Section 3 of the Law on Higher Education and Science, whereas the authority should make a legal assessment based on the description. Individualizing the factual circumstances does not require the identification of specific programs or contractors if the description of events is precise enough to identify them. The requirement to provide detailed data exceeded the limits specified in Article 14b § 3 of the Tax Ordinance and was not necessary to issue an interpretation.

Therefore, since the applicant clearly assumed in the factual circumstances that he was creating computer programs, the authority had no basis to question these claims in any way.

Artykuł A new ruling by the Polish tax authority regarding the taxation of computer software development – Judgment I SA/Kr 146/23 pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.

Cryptoassets, of which a token is a type, are digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technologies. There are three types of tokens: payment or e-money tokens, which serve as a medium of exchange or a store of value; investment tokens, which perform functions analogous to securities; and utility tokens, which provide access to services or products, somewhat similar to vouchers. There are also hybrid tokens, for example, combining the features of cryptocurrencies and real-world assets. These tokens operate by embodying the value of a specific real-world asset and combining it with the flexibility and efficiency of cryptocurrencies. The goal is to provide access to blockchain technology while simultaneously providing a solid link to the underlying tangible asset.

Tokenization is the process of converting data or assets (e.g., property ownership) into a digital token, which is a unique string of characters typically stored in distributed ledger technology (DLT), electronic systems or databases for recording information not maintained by a single, specific entity. DLT allows us to store and use data, both decentralized (i.e., stored in multiple locations) and distributed (i.e., stored on interconnected computers). In this way, computers create a network in which each network participant directly shares its resources (computing power, data, or network bandwidth) with all other network members without the need for any central node. Nodes in a network creating a distributed database are equal in terms of access rights to network resources. One of the main reasons for the development of these technologies is the desire to make it easier for the issuer to raise capital. Tokens do not have to represent the entire asset to which they are assigned. They can, for example, represent a fraction of a share, and the cost is then correspondingly lower, allowing a larger number of people with smaller wallets to access trading in such items.

Share tokenization

One of the main assets subjected to the tokenization process are shares.

To begin this process, a licensed financial institution purchases and holds actual shares of listed or unlisted companies on your behalf. Tokens can also be issued by the company as a representation of its own newly issued shares or those acquired from a shareholder.

Digital tokens are then created electronically, representing the held shares, usually on a one-to-one basis, but as mentioned, a token can also represent a portion of the shares. Another important difference is the relationship between the resulting token and a real share. Some tokens may be merely derivative instruments, as they only reflect the share price, excluding equity rights such as dividend rights, participation and voting rights at the general meeting, and other rights provided for shareholders by the Polish Commercial Companies Code. Others, on the other hand, may bear a significant resemblance to real equity instruments, as their acquisition also grants equity rights, although the actual holder of the shares is still the token issuer.

The next stage is selling to investors. This is where another advantage of using cryptoassets becomes apparent. Automated token trading via smart contracts on specialized decentralized financial platforms increases the speed and liquidity of sales. Furthermore, the platforms are available 24/7, at least five days a week, unlike stock exchanges, which are open only on business days and during specific business hours.

Legal status of tokenized shares in Poland

The European Union currently has a pilot regulation, Regulation 2022/858, on a pilot scheme for distributed ledger technology-based market infrastructures. DLT-based market infrastructure is a generic term that encompasses all three types of activities introduced by the regulation:

1) a multilateral trading platform or, according to the Polish terminology, an alternative trading system, based on DLT; which associates many declarations of readiness to buy and sell financial instruments by third parties

2) a settlement system based on DLT – links between at least three institutions, excluding an indirect participant, within which common rules for clearing or executing their settlement orders apply to these participants,

3) a trading and settlement system based on DLT – a system combining the functionalities of the two above systems.

Currently, the system only accepts stocks whose market capitalization or uncertain market capitalization is less than five hundred million euros.

However, no institution in Poland has joined this system. Furthermore, no applications for authorization to operate the aforementioned infrastructure have been submitted to the Polish Financial Supervision Authority (KNF), the national financial market regulator. Therefore, trading in tokens on the regulated market, i.e., the Warsaw Stock Exchange, is impossible, both legally and factually, because the WSE lacks the appropriate IT infrastructure.

The situation is different in the case of unlisted companies, i.e., joint-stock companies that are not public, and a relatively new type of capital company, the simple joint-stock company. The Commercial Companies Code explicitly mandates an electronic form of the shareholder register. In the case of a private joint-stock company, the existing share register should be replaced. The law explicitly mentions the use of distributed database technology, such as blockchain, as possible solutions. Storing share tokens as entries in a shareholder register maintained using blockchain technology is permitted. This is another step in line with the global trend of digitization. The legislator intended this to facilitate the dematerialization of shares outside the scope of stock exchange regulations, i.e., the securities depository. The register is not maintained by the company itself. According to the law, it must be prepared and updated by: a notary or an entity authorized to maintain a securities account under Article 4 of the Act on Trading in Financial Instruments, i.e.: a brokerage house; a bank conducting brokerage activities; a custodian bank; a state-owned bank conducting brokerage activities; A foreign investment firm or other foreign legal entity with an active branch in the Republic of Poland; the National Depository for Securities; and the National Bank of Poland. This specific and comprehensive list is dictated by the fact that these entities are subject to the supervision of relevant administrative or administrative bodies, which provides a certain guarantee of their reliability regarding the security and integrity of the data contained in the register. This is based on an agreement that the company is obliged to conclude with such an entity. However, this register, in itself, does not enable trading in such tokenized shares, as access is limited only to shareholders and the managing entity, such as a notary or brokerage house. A separate platform is required for this. Tokens representing shares and granting the holder (incorporating) equity rights meet the definition of a security under Directive 2014/65/MIFID II and the Polish act implementing it. For this reason, the provisions of Regulation 2023/1114 MICA on crypto-asset markets do not apply to them. Instead, they are subject to the provisions of the Act on Trading in Financial Instruments and European regulations governing the capital market, which imposes, for example, the obligation to submit a prospectus, unless exemptions provided for in this act apply. It is worth noting that the European Securities and Markets Authority has confirmed in its current guidelines that issuance technology, such as blockchain, does not change the legal classification. However, it is also important to remember that the severely limited oversight by the Polish Financial Supervision Authority and the lack of extensive regulations regarding asset trading in private companies pose significant risks associated with trading in tokens and other crypto-assets. The lack of a company listing on the stock exchange makes it difficult to obtain reliable information about the company’s condition and, therefore, make informed investment decisions.

Tokenized shares and taxes

Tokens that represent shares are treated as financial instruments under tax law, so they are subject to the same taxation as classic instruments such as shares.

Under personal income tax (PIT), income is generated upon the sale of a financial instrument, in this case a token representing a share, or upon the exercise of a right under a derivative instrument, such as an equity token exposing the holder solely to the share price. The tax base is the difference between the cost of obtaining the income and the final income. The cost of obtaining the income will be the price paid for the token, while the income will be the price obtained from its sale. Pursuant to Article 30b of the Personal Income Tax Act, the tax rate on such income is 19%.

Corporate income tax (CIT) applies to capital gains and income from other sources. However, the issuance of tokens and their purchase by investors should be treated as a contribution to share capital if the company issues both shares and tokens. Such an inflow of funds is exempt from CIT under Article 12, Section 4, Item 4 of the CIT Act. If the token issuer is the entity that purchased the shares and issued the associated tokens, the income will be treated as capital gains under Article 7b, Section 1, Item 3, Letter a. Income, calculated similarly to personal income tax, will be taxed at a 19% rate for all taxpayers, as the preferential 9% rate for small taxpayers and entities during the first year of operation does not apply to capital gains.

Financial instruments, and therefore tokenized shares, are not goods within the meaning of the Value Added Tax (VAT) Act. Only services related to financial instruments could be subject to taxation. However, the law generally excludes the financial market, including the insurance market, from VAT. Article 43, paragraph 1, item 41 states: “Services related to financial instruments, referred to in the Act of 29 July 2005 on Trading in Financial Instruments (Journal of Laws of 2024, items 722 and 1863, and of 2025, item 146), are exempt from tax, excluding the storage and management of these instruments, as well as intermediation services in this regard.” In the case of tokens linked to shares, a tax liability could only arise in relation to the storage of actual shares by the token issuer.

Artykuł Cryptoassets and tokenization in Poland, including shares tokenization pochodzi z serwisu KIELTYKA GLADKOWSKI LEGAL | CROSS BORDER POLISH LAW FIRM RANKED IN THE LEGAL 500 EMEA SINCE 2019.