Tax preferences for limited partnerships – judgment of the Supreme Administrative Court in Poland

The Supreme Administrative Court (NSA), in its judgment of 6 July 2021, II FSK 101/21, recognized the applicability of tax preferences contained in the double taxation avoidance agreement between Poland and Germany (DTAA) to limited partnerships.

The essence of the dispute

The dispute between the tax authority and the company began with a request for an individual interpretation of tax law on preferential conditions for withholding tax.

According to the Director of the National Tax Information Service (DIKS), the company is not entitled to take advantage of such a possibility, because the partnership (in the case described above, it is a German limited partnership), which is not subject to income tax, cannot benefit from preferential withholding tax conditions.

The authority based its decision on the belief that the person benefiting from these privileges is the partner of the partnership, and it is up to this entity whether the dues paid by the Polish tax resident should be taxed, – and if so, at what rate. The company has appealed the DIKS decision. In 2020. The Voivodship Administrative Court (WSA) agreed with the company and revoked the challenged individual interpretation.

With or without preference?

The case moved to the Supreme Administrative Court (NSA), which in 2021 ruled, in line with the court of first instance, that the limited partnership could be a beneficiary of the preferential tax treatment under the DTAA.

According to the court, in order for a partnership to benefit from preferential rates under the DTAA, it must have the status of a “person” and a “registered office” in Poland or Germany. According to the NSA, the status of “person” described in Art. 3 para. 1(b) of the DTAA, the company obtains by falling within the definitions of “any other association of persons.”

The condition of having a “registered office” is met by partnerships through the interpretation of Article 4(4) of the DTAA, which regulates the residency of partnerships.

Furthermore, according to the NSA, a partnership does not need to be treated as a legal entity for tax purposes in order to be included within the subject scope of the PTA, since Article 4(4) of the DTAA does not impose such a requirement.

In addition, the NSA stressed that in Articles 10-12 of the DTAA, the parties to the agreement did not require that the entity entitled to dividends, interest, or royalties be the taxpayer, only the “entitled person.”

In conclusion, although the German limited partnership itself is not a taxpayer of income tax in Poland, it may be considered a resident and the income it generates may benefit from tax preferences under the Double Taxation Avoidance Agreement between Poland and Germany (DTAA).

Authors:
Aleksandra Philips, LL.M., VAT-Specialist
Maciej Gryka, Junior tax consultant