An agency permanent establishment of a US company may arise in Poland where a person acting for the US enterprise has and habitually exercises authority to conclude contracts in its name. The assessment should not, however, be limited to the wording of the relevant agreements. The actual role of the individuals operating in Poland must also be reviewed.
Agency permanent establishment under the Poland–US treaty
The 1974 double tax treaty continues to apply between Poland and the United States. The treaty signed in 2013 has not entered into force, as confirmed by the official Polish Ministry of Finance treaty list.
Under Article 6(4) of the 1974 Poland–US treaty, an agency permanent establishment may arise where a person acting in Poland for a US enterprise has and habitually exercises authority to conclude contracts in the enterprise’s name. If a permanent establishment arises, Article 8 allows Poland to tax the profits attributable to it.
The absence of an office or another fixed place in Poland reduces the fixed-place permanent establishment risk. For an agency permanent establishment, the authority and actual functions of the local personnel are particularly important.
Agency permanent establishment and sales support
The analysis should determine who contacts clients, presents offers, provides pricing information, collects orders, discusses commercial terms and coordinates the delivery of services. It is also necessary to establish whether the activities performed in Poland are merely auxiliary or form part of the company’s core business.
An unfavourable approach can be seen in the individual tax ruling of 24 August 2018, reference 0114-KDIP2-1.4010.227.2018.2.AJ. Although the agent had no formal authority to negotiate or conclude contracts, the tax authority noted that its employees performed activities important to the sales process:
“The Polish agent’s marketing activities pursued the same objectives as the company’s core business.”
The position was subsequently accepted in the Supreme Administrative Court judgment of 6 October 2022, reference II FSK 312/20. In its oral reasoning, the Court stressed:
“The services performed by the Agent cannot be regarded as preparatory or auxiliary.”
In that case, marketing activities, client support and sales assistance contributed directly to contracts concluded by the foreign company. The quotations above are unofficial translations.
Does the absence of authority exclude an agency permanent establishment?
Under the Poland–US treaty, the absence of authority to conclude contracts and the fact that no such authority is habitually exercised are strong arguments against an agency permanent establishment.
The review should not, however, end with the formal wording of the contracts. The tax authorities may examine the actual operating model, the level of dependence of the Polish personnel, their involvement in acquiring clients and the importance of their activities to the US company’s core business.
The cited case concerned a German company and the Poland–Germany treaty. Its conclusions should therefore not be applied automatically to the Poland–US treaty. Nevertheless, it illustrates an interpretation that should be considered when structuring cross-border cooperation.
We previously discussed the broader issue in our article Foreign Tax Establishment in Poland.
How can we help?
We assess the risk of an agency permanent establishment or fixed-place permanent establishment of a foreign company in Poland. Our review covers the duties of local personnel, client contacts, contractual authority and the actual cooperation model.
