KIELTYKA GLADKOWSKI KG LEGAL expertise in matters related to the change of tax optimization
Cross-border tax issues under Polish and European Union law, especially those related to operating activities based on a front company registered in countries with friendly tax jurisdiction, belongs to the specialization of corporate lawyers of KIELTYKA GLADKOWSKI KG LEGAL.
From the perspective of the Polish tax law against tax avoidance and the provisions of Polish law on income taxation of revenues obtained in foreign entities, leveraging one’s own economic interests with an offshore company is an interdisciplinary and multijurisdictional problem for Polish entities optimizing taxes in this way, which requires the appropriateness of using such a solution. Each such operating activity is therefore particularly individual and requires an original advisory solution from many legal perspectives.
KIELTYKA GLADKOWSKI KG LEGAL has been dealing with tax issues for many years, in particular those related to operations in countries with friendly tax jurisdiction, and in particular cases related to intermediation in registering companies in friendly tax jurisdictions for entities related to Polish jurisdiction, such as registering companies in the Cayman Islands.
An exemplary case study of tax optimization of Polish operating activities based on the Cayman company and the domestic tax jurisdiction of the owners of such a company can be found on our blog at this link:
1/ provides legal support for Polish business entities under Polish law in cooperation with foreign law firms based in favorable tax jurisdiction from the perspective of Polish tax realities, in establishing offshore companies and in the entire process of tax leverage of cross-border operating activities;
2/ cooperates with foreign law firms for Polish and foreign clients in order to arrange the corporate governance of an offshore company in accordance with Polish tax law relevant to the owners of the company;
3/ renders advice on corporate governance of an offshore company for Polish owners enabling remote management of the company, taking into account Polish tax realities and requirements of corporate owners of the company;
4/ prepares sworn (certified) translations from a foreign language into Polish of documents necessary to establish an offshore company for the purpose of registering an offshore company abroad and for tax and court proceedings as well as for regulatory requirements, including registered owners of foreign companies in the Polish commercial register.
In accordance with Polish law, pursuant to the Corporate Income Tax Act (Polish Journal of Laws 2021.1800, consolidated text) and the Personal Income Tax Act (Polish Journal of Laws 2021.1128, consolidated text), obtaining revenue from a foreign entity is, as a rule, taxable and amounts to roughly 19%.
However, if one changes one’s tax residence, in principle there is no requirement of tax. The starting point generating the tax liability is the country of tax jurisdiction, not the place of business. Running a company in a different, tax-friendly territory entails a tax obligation for Polish tax residents.
However, in the case of a change of tax residence, the tax obligation does not exist, so from the perspective of the tax profitability of Polish capital operating an offshore company, the issues of formal tax residence of the owner of the offshore company are important, and the examination of the possibility of creating conditions for the tax residence of the owner of the offshore company in a more optimized tax jurisdiction, than the rigorous provisions sealing the revenues of Polish owners of foreign entities, such as the Cayman Company, allow for such solution.
In addition to the issue of tax residence of the Polish owner of the offshore company outside the Polish tax jurisdiction, it is also important to act in accordance with the provisions aimed at preventing conscious and intentional tax avoidance, which include, above all, Article 119a § 1 of the Tax Ordinance (Polish Journal of Laws 2021.1540, consolidated text), which is an anti-avoidance clause regarding taxation. Pursuant to the said provision, an artificial act, contrary to the object, purpose or act (statute), the primary purpose of which is to avoid taxation is invalid. Hence, obtaining a tax advantage, i.e. avoiding taxation, must be the main objective of the acting entity. Therefore, improper formation of companies and an “artificial” change of tax jurisdiction without operational reasons is, from the perspective of the Polish Tax Code, an action aimed at avoiding taxation. However, the change of tax jurisdiction is not clearly related to the desire to establish a company in a tax haven.
OBJECTIVE OF ADVICE PROVIDED BY KIELTYKA GLADKOWSKI KG LEGAL – Individual approach to applied solutions.
The predetermining factor for the popularity of leveraging the tax obligation based on the offshore company and the foreign tax jurisdiction of the Polish owners of the offshore company is as a rule the lack of taxes in a selected jurisdiction, e.g. corporate or personal income tax. Doing business as an exempt company in tax-benefit jurisdictions sometimes (as with certain types of companies incorporated in the Cayman Islands, for example) does not incur a tax liability, only a business fee.
As a part of its advisory services, KIELTYKA GŁADKOWSKI KG LEGAL pays special attention to negotiating the conditions and basis of corporate governance of newly created entities, the AoAs of a foreign company. This is due to the fact that most companies registered in favorable jurisdictions have only their registered offices there, while conducting their operations globally. Therefore, an indispensable problem for the proper establishment of a cross-border structure with an offshore capital company is the proper arrangement of the corporate governance of such a company, not only taking into account the convenient structure of the company, but also taking into account the issue of the specific tax jurisdiction of the company’s owners and creating a real need for operational action precisely taking into account the tax-favorable jurisdiction.
Therefore, leveraging one’s own economic interests with an offshore company is an interdisciplinary and multi-jurisdictional problem that requires the use of such a solution. Each such operating activity is therefore particularly individual and requires an original advisory solution from many legal perspectives.
KIELTYKA GLADKOWSKI represents its Clients before Polish tax authorities.
Applying for and obtaining individual tax interpretations in respect whether there is a tax obligation in a specific case
An individual tax query addressed to the Director of the National Revenue Administration is one of the institutions of Polish tax law, allowing for direct contact between the taxpayer and the tax authority. It should be distinguished from the general interpretation issued by the Polish Minister of Finance and tax explanations. The most important elements of individual tax interpretations are the presentation of the actual state or future event and the suggested legal solution to the problem.
KIELTYKA GLADKOWSKI in providing legal assistance to Clients in cross border cases deals with:
It is worth noting that an individual interpretation is binding only and exclusively on the person it concerns. However, very often, a general interpretation is issued on its basis, affecting all taxpayers. The provisions governing the above issues have been included in the Tax Ordinance (Polish Journal of Laws Polish Journal of Laws 2021.1540 consolidated text). Interestingly, the Entrepreneurs’ Law Act (Polish Journal of Laws Polish Journal of Laws 2021.162, uniform text) also includes mechanisms referring to the application of provisions on individual interpretations, which is also an area of practice of our law firm.
KIELTYKA GLADKOWSKI KG LEGAL advises on the basis of very complex and frequently changing Polish and EU tax law, the main core of which consists of:
– over 20,000 executive acts issued by the Polish Ministry of Finance and state authorities;
– implemented EU legislation, such as Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC;