Threshold Determinations and Tax Risk Mitigation Strategies
Foreign enterprises conducting business operations within Polish territory confront a substantial, yet frequently underestimated, tax exposure: the inadvertent creation of a permanent establishment. The consequences of such a determination are far-reaching, encompassing mandatory corporate income tax compliance in Poland, local accounting obligations, and potential penalties for registration failures. This article provides a comprehensive analysis of the constituent elements giving rise to a permanent establishment, examines typical risk scenarios through the lens of recent administrative court jurisprudence, and offers practical guidance for structuring cross-border operations to minimize tax exposure.
I. The Concept of Permanent Establishment Under Polish Law
A. Definitional Framework
A permanent establishment (zakład podatkowy) constitutes the legal construct determining the circumstances under which a jurisdiction may tax the income of a foreign enterprise derived from activities conducted within its territory. In essence, it represents the threshold beyond which a foreign entity becomes a Polish taxpayer.
B. Domestic Statutory Provisions
Pursuant to Article 4a(11) of the Corporate Income Tax Act (ustawa o podatku dochodowym od osób prawnych), a foreign establishment encompasses three distinct categories:
Fixed Place of Business. This category includes any location through which a foreign entity wholly or partially conducts business activities within Polish territory, particularly branches, representative offices, bureaus, factories, workshops, or sites for natural resource extraction.
Construction Sites. Building projects, assembly operations, or installation activities conducted within Poland by foreign entities fall within this category.
Dependent Agents. Persons acting on behalf of foreign entities who possess authority to conclude contracts and habitually exercise such authority constitute the third category.
C. The Primacy of Double Taxation Treaties
The statutory definition operates on a subsidiary basis—it applies only where the relevant double taxation agreement (DTA) does not provide otherwise. In practice, for enterprises domiciled in jurisdictions with which Poland has concluded such treaties, the provisions of the applicable DTA assume determinative significance.
Although the majority of Polish tax treaties derive from the OECD Model Tax Convention, material variations exist among them—both in the definitional scope of permanent establishment and in the negative criteria precluding its formation. The Supreme Administrative Court (Naczelny Sąd Administracyjny, hereinafter “SAC”) addressed this issue in its judgment of February 11, 2025 (Case No. II FSK 610/22), emphasizing that the divergences between the narrower permanent establishment definition embodied in certain earlier DTAs and the broader formulation articulated in the Multilateral Instrument (MLI) and the 2017 iteration of the OECD Model Convention are sufficiently pronounced as to preclude their interchangeable application. Accordingly, each factual matrix requires individual assessment with reference to the applicable bilateral agreement, including its date of conclusion and any subsequent modifications. In matters of such complexity, the guidance of qualified tax counsel proves invaluable.
II. Tripartite Classification of Permanent Establishment
Administrative court jurisprudence and interpretive practice of tax authorities permit the identification of three fundamental forms of permanent establishment in Poland.
A. Fixed Place of Business
This classical form of permanent establishment requires the concurrent satisfaction of three elements:
Existence of a Place of Business. There must be a physical location for conducting business activities, which may comprise an office, warehouse, or even space within a counterparty’s premises, provided the enterprise maintains consistent access thereto.
Permanence of the Place of Business. The location must exhibit stability in both geographical terms (a defined site) and temporal terms (intention to conduct activities over an extended period, practically interpreted as a minimum of six months).
Conduct of Business Activities. The enterprise must carry on its business through the fixed place, and such activities must not be exclusively auxiliary or preparatory in character.
As the SAC observed in its February 11, 2025 judgment (Case No. II FSK 610/22): “Where a company leases office premises in Poland for its employee, it unquestionably maintains a place of business in Poland.” The Court simultaneously cautioned that the mere existence of such premises does not conclusively establish a permanent establishment—an assessment of the nature of activities conducted therein remains essential.
B. Dependent Agent
This form of permanent establishment may arise even absent a fixed place of business where a person operating within Polish territory satisfies specified criteria. Under Article 5(5) of most DTAs, the following elements must concurrently obtain:
- the person acts on behalf of the foreign enterprise;
- the person possesses authority to conclude contracts in the enterprise’s name and habitually exercises such authority;
- the person’s activities are not exclusively auxiliary or preparatory in nature; and
- the person does not constitute an independent agent acting in the ordinary course of business.
The concept of authority assumes critical importance in this analysis. Administrative courts have determined that the relevant inquiry extends beyond formal civil law authorization to encompass the factual capacity to bind the enterprise. As the SAC articulated in its February 11, 2025 judgment (Case No. II FSK 610/22), persons lacking formal power of attorney in the civil law sense but possessing authorization to negotiate all contractual elements in a manner binding upon the enterprise hold authority to conclude contracts within the meaning of permanent establishment provisions.
Conversely, mere operational support—absent authority, negotiating functions, or dispositive capacity—cannot give rise to a permanent establishment in Poland. The SAC confirmed this principle in its judgment of September 4, 2025 (Case No. II FSK 88/23), dismissing the tax authority’s cassation appeal and holding that an entity performing exclusively auxiliary functions (maintaining supplier relationships, identifying offers, gathering information) does not constitute a dependent agent.
C. Construction Permanent Establishment
A building site, construction project, assembly operation, or installation constitutes a permanent establishment only where its duration exceeds the period specified in the applicable DTA—typically twelve or eighteen months. This form of permanent establishment bears particular relevance for construction and assembly enterprises.
III. Auxiliary and Preparatory Activities: The Safe Harbor Exception
Double taxation agreements enumerate activities that do not give rise to a permanent establishment, notwithstanding their conduct through a fixed place of business. Excluded activities include:
- storage, display, or delivery of goods belonging to the enterprise;
- maintenance of stock exclusively for processing by another enterprise;
- procurement of goods or merchandise or collection of information for the enterprise; and
- any other activity of a preparatory or auxiliary character.
Determining whether particular activities qualify as auxiliary necessitates analysis of their relationship to the enterprise’s core business operations. The SAC confirmed in its September 4, 2025 judgment (Case No. II FSK 88/23) that activities limited to support functions in raw material procurement and information gathering, without participation in actual purchasing or sales transactions, constitute auxiliary or preparatory activities that do not satisfy the threshold requirements for permanent establishment formation.
IV. Common Risk Scenarios
A. Offshore Entities with Effective Management in Poland
Among the most consequential risk scenarios is that of a company incorporated in an offshore jurisdiction (such as Cyprus, the United Arab Emirates, or Hong Kong) that is effectively managed by individuals located in Poland. Where critical business decisions are made within Polish territory, board meetings convene in Poland, and commercial correspondence originates from Poland, dual exposure arises:
- the company’s place of effective management may be deemed to be in Poland, potentially triggering unlimited tax liability; and
- a permanent establishment in the form of a fixed place of business (the management location) may be found to exist.
In such circumstances, conducting an economic substance audit of the foreign entity is advisable.
B. Foreign Enterprises with Leased Office Space in Poland
A foreign company leasing office premises in Poland for its employee satisfies the first element of permanent establishment formation—it maintains a fixed place of business. Subsequent consequences depend upon the character of activities conducted within those premises.
Where the employee performs exclusively auxiliary functions (such as market research or administrative support), no permanent establishment arises. However, where the employee conducts commercial negotiations, acquires clients, or participates in the sales process, the risk of permanent establishment formation becomes substantial.
C. Remote Work Arrangements
A particularly contemporary issue concerns employees working remotely from Poland on behalf of foreign employers. The SAC held in its judgment of February 19, 2025 (Case No. II FSK 609/22) that an employee’s private residence utilized for remote work does not constitute a place of business where the employee works from home in lieu of office space made available to them.
The determinative factor is whether the employer possesses the right to control the workplace. As the SAC observed: “Given that the appellant holds no right to control or occupy the employees’ workplace—that is, any demarcated space—the mere provision of computer equipment for remote connectivity does not create a space at the appellant’s disposal and does not establish a place of business.”
Where an employee independently selects their location and may freely change it, and the employer neither leases space on their behalf nor controls the place of work performance, a permanent establishment generally does not arise.
D. Polish Service Providers as Potential Dependent Agents
A prevalent business model involves foreign companies engaging Polish entrepreneurs to provide sales support, marketing, or operational services. The risk of permanent establishment formation depends upon the scope of authority granted to such service providers and their actual independence.
As the Voivodeship Administrative Court in Gliwice noted in its judgment of March 20, 2025 (Case No. I SA/Gl 903/24): “Economic independence, manifested in bearing responsibility for actions undertaken, assumes material significance in assessing permanent establishment existence. A party subject to detailed instructions and supervision cannot bear commercial risk for activities over which they exercise no control.”
Factors indicative of dependent agent status:
- the Polish service provider renders services exclusively to a single foreign company;
- compensation consists of fixed remuneration plus cost reimbursement rather than commission-based fees;
- the provider operates under detailed instructions and supervision from the foreign company;
- the provider participates in negotiations or client acquisition; and
- the provider bears no independent commercial risk.
Factors weighing against permanent establishment formation:
- the service provider conducts independent business operations at their own risk;
- the provider renders services to multiple entities;
- activities are confined to auxiliary functions (information gathering, logistical support);
- the provider lacks authority to conclude contracts; and
- the provider exercises autonomous control over work organization and methodology.
V. Legal Consequences of Permanent Establishment Determination
A finding that a permanent establishment exists in Poland engenders numerous obligations for the foreign enterprise.
Limited Tax Liability. The foreign company becomes subject to Polish corporate income tax with respect to income attributable to the permanent establishment.
Registration Requirements. The enterprise must obtain a Tax Identification Number (NIP) and potentially register for VAT purposes.
Reporting Obligations. The enterprise must maintain accounting records pertaining to the permanent establishment, file tax returns, and prepare financial statements.
Penalty Exposure. Upon discovery of an unregistered permanent establishment, tax authorities may assess tax liability for prior periods together with interest, and in egregious cases may impose fiscal penal sanctions.
VI. Risk Mitigation Strategies
A. Optimal Structural Design
Foreign companies contemplating operations in Poland should consider whether establishing a Polish subsidiary might prove more advantageous. Such an approach affords complete control over tax consequences and eliminates the risk of disputes with tax authorities.
B. Precise Delineation of Authority
Where a company elects to engage Polish service providers or employ personnel, precise specification of their authority is essential:
- avoid granting power of attorney to conclude contracts;
- limit activities to auxiliary functions;
- ensure the service provider’s economic independence; and
- refrain from issuing detailed instructions and exercising control beyond quality verification.
C. Documentary Substantiation
In the event of a tax audit, documentation substantiating the auxiliary character of activities conducted in Poland assumes critical importance. Advisable documentation includes:
- contracts precisely specifying the scope of duties;
- correspondence confirming that business decisions are made abroad;
- evidence demonstrating the absence of contractual authority; and
- documentation establishing the service provider’s independence (rendering services to other entities, bearing independent commercial risk).
D. Advance Tax Rulings
In ambiguous circumstances, obtaining an individual interpretation of tax law provisions merits consideration. Such a ruling protects the taxpayer from adverse consequences of relying upon the authority’s position, even should that position subsequently prove incorrect.
VII. Conclusion For Polish Tax Practise
The question of whether a foreign company has established a permanent establishment in Poland invariably requires individualized analysis encompassing both the provisions of the Corporate Income Tax Act and the terms of the applicable double taxation agreement—including its date of conclusion and any modifications pursuant to the Multilateral Instrument. Enterprises should also be mindful of related compliance obligations, including potential withholding tax implications on cross-border payments.
Recent administrative court jurisprudence confirms that mere operational support, absent authority and actual influence over contract formation, does not give rise to a permanent establishment. Simultaneously, tax authorities subject the actual character of activities conducted by foreign entities in Poland to increasingly rigorous scrutiny, with particular attention to the economic independence of service providers and the degree of control exercised over them. The risk of protracted disputes with fiscal authorities underscores the importance of proactive compliance measures.
Enterprises contemplating expansion into the Polish market or engaging Polish collaborators should thoroughly analyze their operational structure for permanent establishment risk and implement appropriate mitigation mechanisms in advance. Where uncertainty exists, consultation with specialists in tax law and international tax planning is recommended.
VIII. Landmark Global Precedents in Permanent Establishment Jurisprudence
The concept of permanent establishment constitutes one of the most extensively litigated domains within international tax law. The following analysis examines seminal judicial decisions that have shaped the global interpretive framework governing permanent establishment determinations—precedents that remain instructive for practitioners navigating cross-border tax planning in any jurisdiction.
European Union: State Aid and Transfer Pricing Controversies
Apple v. European Commission (2024)
The Apple-Ireland dispute represents the most consequential tax recovery proceeding in European Union history. In September 2024, the Court of Justice of the European Union held that Ireland had conferred unlawful state aid upon Apple through tax rulings issued in 1991 and 2007, ordering the recovery of approximately €13 billion in unpaid taxes.
The substantive dispute centered on whether Apple Sales International and Apple Operations International—entities incorporated under Irish law—had been appropriately taxed on profits attributable to their Irish operations. The European Commission contended that the Irish tax rulings violated the arm’s length principle by permitting Apple to allocate the preponderance of its profits to “head offices” that existed solely as legal fictions, resulting in effective tax rates as low as 0.005%.
The Court of Justice concluded that intellectual property licenses held by the Irish subsidiaries, together with related profits from sales conducted outside the United States, ought to have been allocated to the Irish branches for purposes of taxation. A comprehensive analysis of the proceedings appears on Wikipedia.
Google Ireland: The French Permanent Establishment Litigation (2017–2019)
Google confronted sustained challenges from French tax authorities regarding its advertising operations structured through Ireland. The Paris Administrative Tribunal ruled in July 2017 that Google Ireland did not maintain a permanent establishment in France, thereby dismissing the tax administration’s demand for €1.3 billion in back taxes.
The French authorities advanced the theory that Google France constituted a dependent agent permanent establishment of Google Ireland, arguing that Google France employees possessed de facto authority to conclude contracts on behalf of the Irish entity. The Court of Appeal in 2019 affirmed that Google France lacked the requisite authority to bind Google Ireland contractually—the critical element for establishing a dependent agent permanent establishment under Article 5 of the France-Ireland tax treaty.
Notwithstanding this judicial victory, Google subsequently negotiated a €1 billion settlement to forestall criminal prosecution for tax evasion.
This litigation confirms the doctrinal principle that mere economic and legal dependence proves insufficient to establish a permanent establishment; rather, the habitual exercise of contractual authority on behalf of the principal enterprise remains the dispositive criterion.
Starbucks: The Dutch State Aid Decision (2019)
The General Court of the European Union annulled the European Commission’s 2015 determination that had ordered Starbucks to remit approximately €30 million in back taxes to the Netherlands. The underlying dispute concerned an advance pricing arrangement concluded in 2008 between Dutch tax authorities and Starbucks Manufacturing BV regarding the arm’s length nature of royalty payments.
The Court held that the Commission failed to demonstrate that the tax ruling conferred a selective economic advantage upon Starbucks, nor did it establish that the transfer pricing methodology endorsed by Dutch authorities departed from market conditions. Further analysis of the judgment is available from AKD.
Amazon: The Luxembourg State Aid Proceedings (2023)
The European Commission’s attempt to recover approximately €250 million from Amazon on grounds of alleged illegal state aid ultimately failed. The case concerned tax rulings from 2003 that had endorsed Amazon’s transfer pricing methodology for royalty payments between Luxembourg entities.
The Court of Justice determined that the Commission committed a fundamental analytical error by attempting to employ OECD Transfer Pricing Guidelines as the “reference framework” for assessing selective advantage, notwithstanding that Luxembourg law had not explicitly incorporated these guidelines. This ruling substantially circumscribes the Commission’s capacity to challenge Member State transfer pricing rulings predicated upon OECD standards. A thorough doctrinal analysis appears in European Papers.
India: A Jurisdiction of Intensive Permanent Establishment Litigation
India has emerged as among the most active jurisdictions for permanent establishment disputes, a consequence of assertive tax enforcement policies and complex treaty interpretations.
Formula One World Championship v. Commissioner of Income Tax (2017)
The Supreme Court of India rendered a landmark judgment holding that Formula One World Championship Limited maintained a permanent establishment in India notwithstanding that the racing event persisted for merely three days. The dispute arose from the Grand Prix conducted at the Buddh International Circuit.
The Court reasoned that FOWC—as exclusive holder of commercial rights—conducted business in India through the racing circuit, which constituted a fixed place permanent establishment. FOWC exercised access to and control over the facility, actively participating in organizing and conducting the event.
The judgment articulated three determinative criteria: stability (even of brief duration), productivity (income-generating activity), and dependence (the business required the fixed location). As Wolters Kluwer observes, temporal duration alone does not prove dispositive—the character and extent of control over the location constitute the critical factors.
Morgan Stanley v. Director of Income Tax (2007)
The Supreme Court of India held that Morgan Stanley & Co. Inc. maintained a service permanent establishment in India by virtue of employee secondments to its Indian subsidiary. The case addressed whether outsourcing back-office operations to an Indian subsidiary created a permanent establishment.
The Court determined that the Indian subsidiary did not constitute either a fixed place or agency permanent establishment, as it operated as an independent entity performing support functions. However, a service permanent establishment arose because seconded employees retained an employment nexus with the American parent.
Critically, the Court established that where the Indian subsidiary receives arm’s length remuneration, only stewardship activities and secondment arrangements generate income attributable to the permanent establishment. This principle has become foundational in Indian permanent establishment jurisprudence.
Samsung Electronics v. Commissioner of Income Tax (2025)
The Delhi High Court held that Samsung Electronics Co. Ltd. did not maintain a permanent establishment in India through its wholly-owned subsidiary, notwithstanding the presence of Korean expatriates.
The Court concluded that expatriate activities were preparatory or auxiliary in character under Article 5(4) of the India-Korea Double Taxation Avoidance Agreement, serving only the subsidiary’s local business operations. The judgment emphasized that routine communications between parent and subsidiary for purposes of global business management do not constitute operational control. As Raw Law notes, corporate separateness must be respected absent clear evidence of direct parental control over subsidiary operations.
E-Funds IT Solution v. Director of Income Tax (2017)
The Supreme Court of India clarified that mere outsourcing of work to an Indian subsidiary does not establish a fixed place permanent establishment of the foreign parent. E-Funds Corporation had contracted with American clients to provide IT-enabled services, subsequently subcontracting performance to its Indian subsidiary.
The Court held that the subsidiary’s premises were not “at the disposal” of the American entities, nor was the American companies’ business conducted through the Indian location. The subsidiary provided only back-office support services rather than the principal revenue-generating activity.
This decision aligned Indian jurisprudence with OECD standards and assuaged concerns regarding permanent establishment creation through legitimate outsourcing arrangements.
Rolls Royce Singapore v. Assistant Director of Income Tax (2011)
The Delhi High Court held that where an Indian agent receives arm’s length compensation, profits must nonetheless be attributed to a dependent agent permanent establishment pursuant to transfer pricing principles. Rolls Royce Singapore provided repair and maintenance services and supplied spare parts to Indian customers through a local agent.
The Court accepted that the agent constituted a dependent agent permanent establishment. However, it emphasized that proper profit attribution requires transfer pricing analysis predicated upon functions, assets, and risks. This decision reinforced the principle that transfer pricing methodology governs permanent establishment profit attribution.
General Electric: The Indian Permanent Establishment Determination (2022)
The Delhi High Court confirmed that overseas General Electric entities maintained both fixed place and dependent agent permanent establishments in India. Although products were sold to Indian customers on a principal-to-principal basis with title passing outside India, expatriates and Indian entity employees participated extensively in contract negotiations.
The Court found that designated office space was at the disposal of the foreign entities, including separate chambers and secretarial support for GE expatriates. Significantly, the Court rejected the contention that activities were preparatory or auxiliary, reasoning that for highly specialized technical equipment, customer identification, option communication, technical and financial term discussion, and price negotiation constitute core business activities.
Classical Precedents Establishing Foundational Principles
De Beers Consolidated Mines v. Howe (1906, United Kingdom)
This seminal case established the “central management and control” test for corporate residence. De Beers, incorporated in South Africa, maintained a board of directors divided between Kimberley and London, with London directors constituting the majority and exercising controlling influence.
The House of Lords held that De Beers was resident in the United Kingdom because “the head and seat and directing power” of the company were situated in London, where principal operations were controlled, managed, and directed. This principle remains foundational for corporate tax residence and permanent establishment determinations globally.
Zimmer Ltd. v. France (2010)
The French Supreme Administrative Court (Conseil d’État) held that Zimmer SAS—a French commissionaire distributing orthopedic products for UK-based Zimmer Ltd.—did not constitute a permanent establishment of the British company.
The Court reasoned that Zimmer SAS utilized its premises and employees solely to conduct its own commissionaire activities, which could not be characterized as a place of business of the British company. This judgment established significant limitations on circumstances in which commissionaire structures create permanent establishments under the traditional “fixed place of business” test.
Dell Products Ireland: The Spanish and Norwegian Divergence
The Dell litigation across multiple jurisdictions illuminated controversies surrounding commissionaire arrangements and virtual permanent establishment concepts. The Spanish Central Economic-Administrative Court controversially held that Dell Products Ireland maintained a “virtual permanent establishment” in Spain despite the absence of physical presence, predicated upon the Spanish affiliate’s activities in website translation, content review, and site administration.
Conversely, the Norwegian Supreme Court ruled that Dell AS did not create an agency permanent establishment for Dell Products Ireland because Dell AS lacked legal authority to bind the Irish entity to customer contracts. The Court emphasized that the commissionaire arrangement, governed by the Norwegian Commission Act of 1916, meant Dell AS acted in its own name without creating obligations for the principal.
Retrospective Taxation and Investment Treaty Arbitration
Vodafone International Holdings BV v. India (2020–2021)
The Permanent Court of Arbitration unanimously ruled in favor of Vodafone, rejecting India’s retrospective tax demand of approximately INR 22,500 crores (exceeding $3 billion). The dispute arose from India’s 2012 amendment to the Finance Act, which introduced retrospective taxation powers for indirect transfers of Indian assets.
The arbitral tribunal held that India’s tax demand “breached the guarantee of fair and equitable treatment” under the Netherlands-India bilateral investment treaty. The Indian Supreme Court had ruled in 2012 that Vodafone’s 2007 acquisition of Hutchison’s stake in an Indian telecommunications company was not taxable in India. Parliament subsequently amended the law retrospectively to nullify this judicial determination.
Cairn Energy PLC v. India (2020–2021)
Similarly, Cairn Energy successfully challenged India’s retrospective tax demand of approximately $4.4 billion before the Permanent Court of Arbitration.
The tribunal ruled that India violated the fair and equitable treatment standard by imposing tax liability retrospectively without specific justification, thereby compromising legal certainty and the rule of law. The tribunal awarded Cairn USD $1.2 billion in damages. Following these defeats, India repealed the retrospective tax legislation in August 2021 and refunded approximately Rs. 7,900 crores to Cairn Energy.
Ongoing State Aid Investigations: Nike and IKEA
Nike European Operations Netherlands (2019–2021)
The European Commission initiated an investigation into whether tax rulings granted by the Netherlands to Nike European Operations Netherlands BV and Converse Netherlands BV constituted illegal state aid. The rulings from 2006–2015 endorsed methods for calculating royalty payments to Dutch transparent entities for intellectual property usage, allegedly resulting in artificially reduced taxable profits.
Nike challenged the Commission’s decision to open formal proceedings. In July 2021, the General Court dismissed Nike’s claims, agreeing that intercompany royalty payments determined pursuant to the tax rulings left distribution affiliates with less profit than arm’s length conditions would yield.
Inter IKEA Systems: The Dutch Tax Ruling Investigation (2017–2020)
The European Commission initiated an in-depth investigation in December 2017 concerning advance pricing arrangements granted by the Netherlands to Inter IKEA Systems BV. The investigation examines the tax treatment of franchise fees and interest deductions on intercompany loans within the IKEA group structure involving Luxembourg entities.
The Commission suspects that the 2006 and 2011 APAs permitted Inter IKEA Systems to remit artificially low taxes by enabling excessive royalty and interest deductions. This investigation exemplifies ongoing European Commission efforts to combat aggressive tax planning through intellectual property structures.
Precedents from Other Jurisdictions
Shell Brasil: Transfer Pricing Enforcement (2024)
Brazil’s Administrative Council of Tax Appeals (CARF) rendered a landmark ruling in October 2024 reinforcing rigorous transfer pricing enforcement. Shell Brasil Petróleo Ltda. applied the comparable uncontrolled price method for intercompany transactions involving oil rig charters from foreign affiliates.
Brazil’s Federal Revenue Service rejected this methodology, contending that Shell’s pricing failed to adequately reflect economic factors, particularly the Return on Average Capital Employed index—a key benchmark for capital-intensive industries. CARF upheld the tax adjustment of R$437 million, determining that the CUP method alone proved insufficient without adjustments for contractual terms, operational risks, and asset utilization.
Poland: Warehousing Services and Permanent Establishment
Polish courts ruled in favor of a German company that had contracted for logistics and warehousing services with a Polish entity, holding that such an arrangement did not create a permanent establishment in Poland. Tax authorities contended that the warehousing facility constituted a fixed place permanent establishment because goods were stored, packed, and shipped to end customers from Poland.
Both the Regional Administrative Court and the Supreme Administrative Court agreed with the German company, reasoning that contracting with an independent logistics provider does not affect the foreign company’s core business. The courts emphasized that merely changing goods storage location while utilizing independent service providers does not create sufficient nexus to establish a permanent establishment.
Doctrinal Synthesis: Principles for Practice
The foregoing precedents confirm several universal principles governing permanent establishment interpretation:
Substance Over Form. Courts consistently examine the economic substance of arrangements rather than their legal structure. Formal corporate separateness between parent and subsidiary does not automatically preclude permanent establishment findings where substance indicates otherwise.
The Disposal Test. For a fixed place permanent establishment, the foreign enterprise must have a location “at its disposal.” Mere presence or access proves insufficient; the enterprise must exercise a degree of control enabling utilization of premises for business purposes.
Core Versus Auxiliary Activities. Preparatory or auxiliary activities do not create permanent establishments, even when performed through a fixed place. However, determining what constitutes “core” activity depends upon the specific business model and industry context.
Arm’s Length Attribution. Where a permanent establishment exists, profits must be attributed based upon functions, assets, and risks analysis consistent with transfer pricing principles. Arm’s length remuneration of related parties may limit additional profit attribution to the permanent establishment.
Dependent Versus Independent Agency. A dependent agent permanent establishment requires authority to conclude contracts on behalf of the principal and habitual exercise of that authority. Economic dependence alone proves insufficient—legal authority to bind the principal remains the dispositive criterion.
Familiarity with international jurisprudence enables practitioners to better comprehend interpretive trends in permanent establishment law and to structure cross-border activities consciously, thereby minimizing exposure to unexpected tax liabilities.
This article reflects the legal position as of the publication date and is intended for informational purposes only. It does not constitute legal advice. For individual matters, consultation with qualified tax counsel is recommended.
