A B2B agreement with a board member versus Poland’s tax avoidance clause Article 119a

At the outset, it is worth considering whether a board member can provide their services within the framework of a business activity. The position of Polish tax authorities indicates that income from performing managerial functions is classified as income from personal activities, in accordance with Article 13 point 9 of the Personal Income Tax Act. 

Income obtained under management contracts, managerial contracts, or similar agreements concluded within the framework of a business activity is considered income from personal activities, not from non-agricultural business activities, as indicated in Article 10 paragraph 1, point 3 of the aforementioned act. Therefore, it is not possible to apply linear tax or lump-sum tax on such income. The only correct form of taxation for a board member’s remuneration is general principles tax, which is 12% on income up to PLN 120,000, and 32% after exceeding this threshold.

The issue of remunerating board members should also be analysed in a broader perspective. There are situations where a board member is a company shareholder and provides additional services to the company. These additional services are settled within the framework of cooperation between entrepreneurs in the form of a B2B contract. Until recently, tax authorities issued positive tax interpretations regarding the application of a solution where a board member provides services other than managing the company within the framework of a business activity to a related company. However, the jurisprudence in this area has recently changed. 

The Polish tax authority’s current position is that it cannot issue a tax interpretation due to the reference to Article 5b paragraph 1 of the Tax Ordinance, which states: “an individual interpretation is refused by way of a decision in respect of those elements of the factual state or future event for which there is a justified presumption that they may constitute an activity or element of an activity specified in Article 119a § 1”.

According to the wording of the cited article, “an activity does not result in a tax benefit if achieving this benefit, contrary in the given circumstances to the object or purpose of the tax law or its provision, was the main or one of the main purposes of its performance, and the manner of action was artificial (tax avoidance)”. The tax authorities will assume that a taxpayer who is also a board member providing services within the framework of a business activity is acting to obtain a tax benefit. Such a position should be considered extremely inappropriate and unfair. 

Business practice often shows that board members perform many functions in companies, especially in micro-enterprises. This is often because individual board members have strong competencies in the field in which the company operates. This phenomenon can be observed in companies providing professional services such as doctors, lawyers, accountants, auditors, tax advisors, or specialised services like IT. 

It should be noted that the position of tax authorities regarding this issue is also maintained by Poland’s Supreme Administrative Court, as exemplified by the judgment number II FSK 996/24.

What are the consequences for a taxpayer when they receive a decision refusing to issue a tax interpretation based on the tax avoidance clause from Article 119a? Firstly, the issuance of the refusal decision itself does not mean that the taxpayer is actually acting to avoid taxation. This is because the tax authority has the right to issue a refusal based only on justified suspicions of the occurrence of the discussed phenomenon. During the issuance of a tax interpretation, the tax authority does not conduct a tax audit of the taxpayer, does not verify the facts of the case, and therefore cannot examine whether the services provided are actually performed. It is precisely the lack of the possibility to verify the factual circumstances that the authorities cite as the reason for their inability to verify the case, and why the action described by the taxpayer raises suspicions.

So what can an honest taxpayer do if they provide services to a company in which they are a board member? First and foremost, the taxpayer should ensure there is evidence of the services provided by them, such as a completed project, written opinion, email confirmations, contracts, or witness statements. We also recommend diligence in administering the basis for issuing an invoice, and recommend attaching to the invoice a detailed breakdown of the number of hours worked, including the performed activities.

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Anita Tulak is a graduate of the Faculty of Law and Administration and a tax advisor at the National Chamber of Tax Advisors. She has passed through all levels of career in accounting and tax law, from assistant to partner of a law firm and worked for recognised private consulting firms and the “Big Four” company PwC.