Although the 70% tax on severance payments was introduced to curb excessive payouts for senior executives in state-owned companies, today it is being applied much more broadly. Salary components paid to individuals with no connection to company boards – including mid-level technical managers – are often subject to this punitive flat rate. And when taxpayers request a tax ruling, the tax authorities refuse to issue one, suspecting an attempt at tax avoidance. Piotr Sekulski, PhD comments on the issue in his latest article for Prawo.pl.
70% Tax on severance Payments for Mid-Level Managers – Is That Possible??
The regulation in force since 2016, which imposes a 70% PIT rate on payments related to employment termination, continues to be a source of dispute. It was originally intended to target abuses in severance compensation for board members in companies owned by the State Treasury. However, in practice, some employers – fearing disputes with the tax office – apply this tax even to individuals who have never held any executive or management position, such as team leaders in technical departments.
Our commentary on this issue was recently published on Prawo.pl. You can read the full article [here].
tax advisor Piotr Sekulski, PhD
– In practice, the tax, originally aimed at presidents and board members, is now being imposed on a broader group – including politically unaffiliated professionals. I’m aware of a case where a company withheld the 70% tax from compensation paid to a mid-level manager who had led a small team for years but had no influence over the company’s operations or the terms of the agreement. The company took a conservative approach and concluded the punitive tax applied even though it didn’t meet the statutory criteria, and the payment in question was not covered by the provisions. Unfortunately, the tax authority refused to issue an individual ruling, even though it had done so many times in nearly identical situations in the past. (…).
The authority failed to consider that the taxpayer was a lower-tier manager with very limited decision-making power and no real opportunity to negotiate the terms of the agreement. It also overlooked the complex issue of whether the employer should even be classified as a State Treasury-controlled company. The employer acted in line with internal group policies, applying the same compensation rules across the board. What’s most troubling is that taxpayers can no longer obtain tax rulings in situations that, just a year or two ago, were routinely covered by prior interpretations. This increases uncertainty and leaves employees and employers without guidance.(…)
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This issue (70% tax on severance payments) has been controversial for years. That’s why we strongly recommend consulting your specific tax situation before taking any action. If you’re unsure whether the 70% tax applies to your case, feel free to reach out to us.
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