Taxation on intangible services
Taxation on intangible services (fiscalité des services immatériels, Besteuerung immaterieller Dienstleistungen) constitutes a comprehensive system for the taxation of economic performances lacking physical form, encompassing an expansive range of intellectual, advisory, technical, and digital activities. The proper functioning of this system necessitates specialized rules determining the place of supply, applicable tax rates, and collection mechanisms. The taxation of intangible services represents one of the fundamental challenges confronting contemporary fiscal systems in the era of globalization and digital transformation, requiring the adaptation of traditional legal constructs – originally designed for an economy predicated upon material goods and domestic transactions – to accommodate the reality of cross-border flows of intangible value and the global-scale exploitation of intellectual property rights.
Definition and Scope
Intangible services comprise all economic performances unrelated to the transfer of ownership or possession of physical goods and not classified as supplies of goods under applicable tax provisions. This category exhibits extraordinary breadth and heterogeneity, encompassing both traditional professional services rendered by qualified individuals and modern digital services delivered electronically without any physical interaction between provider and recipient.
The principal categories of intangible services include: advisory and consulting services (strategic consulting, financial, tax advisory, audit, and management consulting, legal advice); intellectual and technical services (programming, information systems design, data analysis, database administration, server hosting, cloud computing); services related to intellectual property rights (licensing of patents, trademarks, copyrights, know-how, trade secrets, with corresponding royalties); digital services (music and video streaming, electronic publication downloads, mobile applications, subscription-based Software-as-a-Service offerings, online gaming, internet courses, educational platforms); advertising and marketing services (digital media advertising, search engine marketing, social media management, search engine optimization); and management and administrative services (business process outsourcing, back-office services, transaction processing, customer relationship management).
The distinction between intangible services and supplies of goods proves fundamental for tax purposes, particularly regarding value-added taxation, where distinct place-of-supply rules and tax rates apply. This boundary is not invariably sharp – the downloading of software constitutes an intangible service, whereas the sale of identical software on physical media (CD, DVD, USB) represents a supply of goods. Similarly, online database access constitutes an intangible service, while the sale of a database on a hard disk represents a supply of goods.
Historical Genesis and Regulatory Evolution
In antiquity and the medieval period, tax systems concentrated almost exclusively upon the taxation of material goods – land, real property, agricultural harvests, commercial merchandise – owing to difficulties in identifying, valuing, and enforcing taxes on intangible performances. The concept of taxing income from intellectual activity or professional services remained virtually absent from pre-industrial fiscal systems, where the majority of economic activity centered on agricultural production, craftsmanship, and trade in physical goods.
Medieval authorities taxed certain forms of professional activity indirectly – through levies on craft guilds, royal monopolies on specified types of production, commercial concessions, and border customs duties – yet the very concept of intellectual property as a legal category subject to taxation remained unknown to European medieval law. Only with the development of Renaissance humanism and Gutenberg’s invention of movable-type printing did conditions emerge for the creation of copyright law as protection for creators of literary and scientific works.
A pivotal moment in the history of taxing intangible value came with the emergence of intellectual property as a distinct legal category in the early modern period. Ancient Greece (Sybaris, sixth century B.C.E.) first introduced a rudimentary form of patent protection – a one-year exclusivity for “inventors of luxurious culinary dishes.” The Statute of Monopolies, enacted by the English Parliament in 1624, represented the first modern statute regulating the patent system, granting inventors a fourteen-year period of exclusive protection for their inventions. The Statute of Anne of 1710 introduced the first modern copyright system, affording authors fourteen years of protection with the possibility of a single renewal. These foundational legal instruments established the basis for future taxation of royalties and licenses for the exploitation of intellectual property rights.
Taxation on Intangible Services – Withholding Tax in the Income Tax Context
In the nineteenth and early twentieth centuries, concurrent with industrial development, international trade, and technology transfer, states began imposing withholding taxes on cross-border payments for licenses, patents, trademarks, and know-how. The first tax treaties regulating international taxation appeared in 1899 (Austria-Hungary’s treaty with Prussia), though these contained no separate, specific provisions concerning royalties. These treaties generally regulated income taxes in broad terms, treating income from licenses, patents, and know-how as “other income” subject to general taxation rules.
Following World War I, the League of Nations undertook systematic efforts to standardize international taxation, including payments for intangible assets. League experts developed a series of model tax conventions during the 1920s and 1930s that contained royalty provisions, though these remained inconsistent and reflected the conflict of interests between technology-exporting countries (preferring low or zero withholding taxes) and technology-importing countries (seeking to maximize tax revenue from cross-border payments).
After World War II and the establishment of the Organisation for Economic Co-operation and Development in 1961, the OECD assumed leadership in standardizing international tax law. In 1963, the OECD published its first Model Tax Convention on Income and on Capital, which included Article 12 dedicated to royalties. This article defined royalties as “payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.”
The OECD Model recommended that royalties be taxed exclusively in the country of residence of the payment recipient, rather than in the source country, with the objective of eliminating double taxation and facilitating international technology transfer. This recommendation, however, met resistance from developing countries, which sought to preserve the right to tax royalties paid by their residents to foreign licensors. The UN Model Tax Convention, developed by the United Nations as an alternative to the OECD model, provided for source-country rights to impose withholding tax on royalties, typically with rate limitations of 10-15% in bilateral agreements.
The withholding tax collection mechanism for royalties operates simply – the royalty payer (licensee) bears an obligation to withhold the appropriate tax amount from the gross payment and remit it to the local tax authority, while the licensor receives the net amount. The payer’s failure to fulfill this obligation may result in personal liability for the unwithheld tax, together with interest and penalties.
Taxation on Intangible Services – Value-Added Tax
A fundamental breakthrough in intangible services taxation came with the introduction of value-added tax (VAT) in France during the 1950s (experimentally in 1954, on a full scale in 1967) and its rapid adoption by other European countries and subsequently the majority of jurisdictions worldwide. VAT as a consumption tax replaced traditional cascading turnover taxes, which led to double or multiple taxation of the same good or service at various stages of the supply chain. By 2020, over 160 countries had implemented VAT or its variant (GST – Goods and Services Tax in Anglophone countries), rendering it the world’s most widespread indirect tax.
A critical challenge for VAT systems involved determining the place of supply for intangible services in cross-border transactions. Initially, most jurisdictions applied the straightforward rule that the place of supply constituted the place of the supplier’s business establishment or fixed establishment, which resulted in situations where services supplied cross-border bore taxation at the supplier’s country rates, regardless of the place of actual consumption. This principle proved inadequate in the era of globalization and electronic commerce development, leading to competitive distortions and tax revenue losses for countries where services were actually consumed.
In 2008, the European Union adopted fundamental reform of place-of-supply rules for business-to-business services (B2B). The new rules provided that the place of supply for B2B intangible services constituted the place of the recipient’s business establishment rather than the supplier’s, with application of the reverse charge mechanism, wherein the service recipient, if a VAT-registered taxable person, self-assesses VAT due at the rate applicable in his country. This change aimed to ensure taxation at the place of consumption and eliminate artificial shifting of services to low-VAT jurisdictions.
In 2015, the EU implemented another revolutionary reform, addressing digital services supplied to consumers (B2C). From January 1, 2015, the place of supply for electronic, telecommunications, and broadcasting services to consumers became the consumer’s place of residence, regardless of the supplier’s location. This meant that digital suppliers worldwide providing services to EU consumers had to register for VAT purposes in EU member states and charge VAT at the rates of consumers’ countries. To simplify compliance, the EU introduced the Mini One Stop Shop (MOSS) system, subsequently transformed into the One Stop Shop (OSS), enabling suppliers to register in a single member state and account for VAT on all B2C transactions throughout the EU via a single quarterly return.
With the explosion of the digital economy in the twenty-first century and the dominance of major technology platforms (Google, Facebook, Amazon, Apple, Netflix), numerous countries began experiencing frustration regarding their inability to effectively tax income these firms generated within their territories. Traditional nexus rules – requiring physical presence of an enterprise in a country for tax liability to arise – proved inadequate for digital firms, which could generate substantial revenue from a given market without any physical presence through utilization of online platforms, algorithms, and user-generated value.
In response to this situation, many countries unilaterally introduced so-called Digital Services Taxes (DST) – turnover taxes imposed on revenues (not profits) from specified digital services supplied by large technology corporations. France pioneered in Europe, introducing in 2019 a 3% DST on revenues from digital advertising, e-commerce marketplace platforms, and user data sales for firms with global revenues exceeding €750 million and revenues in France exceeding €25 million. Similar implementations rapidly followed in the United Kingdom (2% DST from 2020), Italy (3% DST from 2020), Spain (3% DST from 2021), Turkey (7.5% DST from 2020), Canada (3% DST from 2024), and India (6% Equalisation Levy from 2016).
Unilateral DSTs triggered sharp tensions between the United States and countries introducing them, as the overwhelming majority of firms subject to these taxes constitute American technology corporations. The U.S. administration accused these taxes of discriminating against American firms and threatened retaliatory trade tariffs on products from DST-implementing countries. In response to this crisis, the OECD intensified work on a global solution within the Base Erosion and Profit Shifting 2.0 (BEPS 2.0) project framework, particularly on Pillar One, which aims to reallocate a portion of multinational firms’ profits to market jurisdictions where their users and customers reside, regardless of the firm’s physical presence in those countries. Under the political agreement reached in October 2021 by over 136 jurisdictions, countries committed to withdrawing unilateral DSTs upon Pillar One implementation; however, implementation delays (originally planned for 2024, currently anticipated for 2025-2026) suggest that DSTs will likely remain in force for coming years.
A separate, purely domestic strand concerns liability for another person’s tax. The Polish Act of 4 September 2026 amending the VAT Act (Journal of Laws, item 1270) extends, from 1 January 2027, the joint and several VAT liability previously reserved for trade in sensitive goods to twelve groups of intangible services set out in a new Annex 16, ranging from IT and accounting services to consultancy, advertising and recruitment. The purchaser of such services may be held liable for VAT that the supplier failed to remit, where the invoice amounts to at least PLN 15,000 gross or monthly net purchases from a single supplier exceed PLN 50,000; payment under the split payment mechanism excludes that liability in full. Foreign groups with Polish subsidiaries should note that the test is the purchaser’s knowledge, assessed at the time of the transaction, and that it applies irrespective of where the supplier is established.
Taxation Systems in Jurisdictional Practice
With respect to value-added tax, contemporary systems employ complex place-of-supply rules differentiated according to transaction character (B2B versus B2C) and service type. For business-to-business transactions (B2B), the general principle adopted by most jurisdictions, including the entire European Union, provides that the place of supply for intangible services constitutes the place of the recipient’s business establishment or fixed establishment. In practice, this entails application of the reverse charge mechanism, wherein the service recipient, being a VAT-registered taxable person in his country, self-assesses VAT due at the rate applicable in his jurisdiction, while the supplier does not charge VAT on the invoice. This mechanism eliminates the necessity for supplier registration for VAT purposes in the recipient’s country and ensures taxation at the place of consumption.
For business-to-consumer transactions (B2C), the rules prove more complex. The general principle for most intangible services provides that the place of supply constitutes the supplier’s place of establishment, meaning the supplier charges VAT at his country’s rate. This general principle, however, admits significant exceptions, particularly for digital services (telecommunications, broadcasting, electronic), where since 2015 in the EU the place of supply has been the consumer’s place of residence or habitual residence. This means that a digital supplier providing services to consumers in various EU countries must charge VAT at each of those countries’ rates, creating substantial administrative challenges.
To simplify reporting obligations, the European Union introduced two distinct simplification schemes which should not be conflated. The One Stop Shop (OSS) covers services supplied to consumers and intra-Community distance sales of goods, and permits VAT on all such transactions throughout the Union to be accounted for in a single quarterly return filed electronically in the member state of identification. The Import One Stop Shop (IOSS) addresses something different, namely distance sales of goods imported from third countries in consignments of an intrinsic value not exceeding EUR 150, and operates on a monthly return. For a supplier of intangible services the relevant scheme is therefore the OSS; the IOSS falls outside the scope of services.
The rule of taxation in the consumer’s country is subject to a significant limitation that is frequently described inaccurately. A threshold of EUR 10,000 per annum has applied since 1 January 2019, originally for telecommunications, broadcasting and electronic services, and since 1 July 2021 it also covers, on a combined basis, intra-Community distance sales of goods. The e-commerce reform did not abolish that threshold but broadened and unified it. For as long as the aggregate value of such supplies to consumers in all other member states does not exceed that amount, the place of supply remains the supplier’s member state of establishment, with an option to elect taxation in the member state of consumption. In the Polish VAT Act the threshold is expressed as PLN 42,000 (Article 28k(2) and Article 22a(1)). Two qualifications matter. First, the threshold is available only to a supplier established in a single member state; a supplier established outside the European Union has no threshold at all and accounts for VAT in the consumer’s country from the first transaction. Second, the threshold is common to goods and services, so that distance sales of goods may exhaust it for digital services and vice versa.
With respect to income taxes, the principal instrument for taxing intangible services comprises withholding taxes on royalties. Royalties – payments for the use or right to use intellectual property rights – typically bear withholding tax in the country where such rights are exploited or from which payment originates. Absent a double taxation treaty, withholding tax rates on royalties may prove quite substantial – typically ranging from 20% to 35%. For instance, the United States imposes 30% withholding tax on royalties paid to nonresidents absent a tax treaty, Mexico applies a 35% rate for trademark royalties, and numerous European countries apply 20-25% rates.
Bilateral double taxation treaties significantly modify these rates. Most treaties based on the OECD Model Tax Convention contain provisions reducing or eliminating withholding taxes on royalties. Under the pure OECD model, royalties should bear taxation exclusively in the recipient’s country of residence (0% rate in the source country), intended to encourage international technology transfer. In practice, however, numerous bilateral agreements provide compromise solutions, whereby the source country retains the right to impose limited withholding tax on royalties, typically at 5-15%, with the recipient then obtaining foreign tax credit in his country of residence to avoid double taxation.
Transfer Pricing and the DEMPE Framework
With respect to transfer pricing, intra-group transactions concerning intangible assets bear particularly rigorous provisions arising from the OECD Transfer Pricing Guidelines. These Guidelines define an intangible asset as “something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances.” This definition encompasses patents, trademarks, trade secrets, know-how, customer lists, software, trade names, goodwill, and other intangible assets.
The OECD recommends utilization of DEMPE functional analysis (Development, Enhancement, Maintenance, Protection, Exploitation) to determine which entities within a corporate group should receive economic compensation related to intangible assets. Under the arm’s length principle, profits from intangible assets should be allocated to entities performing DEMPE functions and bearing associated risks, rather than exclusively to the entity constituting the legal owner of the intangible asset. This principle aims to prevent artificial transfer of intangible assets to low-tax jurisdictions without transfer of economic substance (functions, assets, risks).
Future Prospects and Challenges
The taxation of intangible services remains among the most dynamic and controversial areas of international tax law. The digitalization of the economy, development of artificial intelligence, blockchain and Web 3.0, the growing economic value of personal data, and the dominance of major technology platforms necessitate fundamental revision of traditional concepts of nexus, place of supply, and profit allocation.
A crucial trend involves international convergence toward taxation at the place of consumption or market jurisdiction (destination-based or market jurisdiction taxation). OECD Pillar One, if ultimately implemented, will reallocate a portion of the largest multinational firms’ profits (global revenues exceeding €20 billion, profitability exceeding 10%) to market countries proportional to revenues in those countries, regardless of the firm’s physical presence. This represents a fundamental departure from the traditional model predicated upon physical presence (permanent establishment) and may significantly affect taxation of digital firms and firms providing intangible services on a global scale.
Concurrently, Pillar One implementation encounters substantial political and technical obstacles. The United States, where most firms subject to Pillar One maintain their headquarters, has expressed reservations concerning certain aspects of the proposal, particularly regarding its impact on American technology firms. Failure of the U.S. Congress to ratify the multilateral convention implementing Pillar One may lead to the maintenance or even proliferation of unilateral DSTs, which in turn may escalate trade tensions and lead to fragmentation of the international tax system.
For enterprises providing intangible services, escalating compliance requirements constitute a serious operational and financial challenge. The low threshold of EUR 10,000, common to goods and services alike, means that even small firms and individual digital creators cross it sooner than they anticipate, and that once it is crossed they must register for VAT in multiple jurisdictions or make use of the OSS. Compliance automation through technology platforms becomes indispensable, yet entails implementation and subscription costs that may prove disproportionately high for small enterprises.
The future of intangible services taxation will be shaped by the tension between the need for fair and efficient taxation of the digital economy and the necessity of preserving international competitiveness, supporting innovation, and avoiding excessive administrative burdens. The ultimate shape of this system depends largely upon the international community’s capacity to achieve consensus within the OECD/G20 framework and upon the political will of major players – the United States (check out – How to set up a company in the US), European Union, China, and other largest economies – to subordinate particular national interests to common global solutions.
Intangible Services in Polish Tax Practice
In the Polish system the notion of intangible services appears in three distinct contexts which are frequently conflated, although each has its own catalogue of services and its own consequences. The first is record-keeping for VAT purposes, the second a cost limitation in corporate income tax that is no longer in force, and the third liability for a counterparty’s tax, described above.
The GTU_12 marking in JPK_V7. The Regulation of the Minister of Finance of 15 October 2019 on the detailed scope of data contained in tax returns and in VAT records requires the supplier to mark, in the records part of the JPK_V7 file, the supply of intangible services with the code GTU_12. The catalogue is closed and covers only advisory services, including legal and tax advice and advice connected with management, services in the field of accounting and financial audit, legal, management, head-office, marketing, advertising, market and public opinion research, scientific research and development, and out-of-school forms of education. With effect from 1 July 2021 these were assigned PKWiU 2015 codes, financial audit was added, and the former category of training services was replaced by out-of-school forms of education within PKWiU grouping 85.5. Two practical points: the obligation to mark turns on the actual content of the supply rather than on the wording of the invoice line, and the marking exists solely in the records and is not placed on the sales document.
The GTU_12 catalogue must not be equated with Annex 16, which introduces joint and several liability from 2027. The two lists overlap only in part, and they diverge in both directions. GTU_12 covers legal services and out-of-school forms of education, which Annex 16 does not; Annex 16 covers services connected with software, services connected with employment and administrative office support, which GTU_12 does not. Marking an invoice with GTU_12 therefore says nothing about exposure to joint and several liability, and the converse holds equally.
The limitation on costs of intangible services is no longer in force. Article 15e of the Polish CIT Act, applicable from 1 January 2018, limited the deductibility of expenditure on advisory, market research, advertising, management and control, data processing, insurance, guarantee and surety services and services of a similar nature, as well as licence fees, where acquired from related parties or from jurisdictions applying harmful tax competition. The cap stood at PLN 3 million plus 5 per cent of tax EBITDA. The provision was repealed with effect from 1 January 2022 by the Act of 29 October 2021, and its logic was absorbed into the minimum income tax under Article 24ca of the CIT Act, in which the same categories of costs borne in favour of related parties affect the tax base. Expenditure on intangible services incurred from 2022 onwards is therefore not subject to limitation under Article 15e.
The repeal did not, however, close the matter retrospectively. Under Article 60(1) of the amending act, taxpayers who, before the end of the tax year commencing prior to 1 January 2022, acquired the right to deduct costs under Article 15e(9) retain that right on the previous terms, that is for a further five tax years. In practice this requires the cap to be computed as though the provision were still in force, solely for costs excluded in earlier years, as the Director of the National Revenue Information Service has confirmed in individual tax rulings. A separate mechanism that remains in force, and that concerns the same categories of services acquired from related foreign entities, is the tax on shifted income under Article 24aa of the CIT Act.
Enterprises acquiring or supplying intangible services with a Polish nexus should therefore review their contracts and settlements against all three frameworks before the Annex 16 rules enter into force. Skarbiec Law Firm advises on the classification of services, on documenting due diligence in the selection of suppliers, and on ongoing tax support for cross-border payments for intangible services.
Legal position as at 2026-10-26
Robert Nogacki is a Polish attorney at law (radca prawny), the founder and managing partner of Kancelaria Prawna Skarbiec (Skarbiec Law Firm), which has operated continuously since 2006.
The law is equal for everyone, but the parties rarely are: on one side stands an organization with time, money, and lawyers, on the other a person with one business, one nest egg, and one life.
Clients rarely come to him with a legal problem. They come with a problem that also has a legal side: an audit that began with a single invoice, money entrusted to someone who has disappeared, a company that has to be passed on before it is too late. Most such matters are decided long before the first letter is written, in decisions made without asking and in deadlines nobody remembered. So he begins by asking how the client got here, not what the client should have done.
He advises entrepreneurs and families from more than a dozen countries, including those whose accounts the tax office has just seized and who do not know what to do tomorrow morning. He defends them in tax audits, customs and fiscal inspections, disputes with the tax authorities, and criminal tax proceedings. He represents victims of investment fraud and Ponzi schemes. He helps families set up family foundations and plan succession, so that a life’s work outlasts a single generation.
Not every case can be won. Every case can be run so that the client knows where they stand. Since 2006 he has represented the victims in the WGI case (Warszawska Grupa Inwestycyjna, the Warsaw Investment Group), one of the longest criminal cases in the history of the Polish financial market, because some things must not be left half finished, even when they take two decades. In the case of the collapsed cryptocurrency exchange Zonda (Zondacrypto, operated by BB Trade Estonia OÜ), he represents several hundred victims in the criminal investigation conducted by Poland’s National Prosecutor’s Office and in the Estonian bankruptcy proceedings.
Kancelaria Prawna Skarbiec is listed in the rankings of Poland’s largest tax advisory firms published by Dziennik Gazeta Prawna and Rzeczpospolita, and it is a four-time recipient (2015 to 2018) of the European Medal awarded by the Business Centre Club and the European Economic and Social Committee. Robert Nogacki publishes regularly, in the press and on the firm’s website, for people who have a problem rather than a law degree, because a legal opinion the client cannot understand protects only the lawyer.
He believes that the best legal advice is the kind that means the client never has to appear in court.
