Visit the global automotive industry news blog with European automotive industry news.

GlobalAutoTV

"Germany Today and Moving Forward!"
Dr. Juergen Weber

euro resources

Need an office in Europe or Eastern Europe? Office suites, meeting rooms, virtual offices, network access

free downloads

EUROPE: "European Mid-Market poised for Growth" report

EUROPE: "European Mid-Market poised for Growth" report. 20-page report by KPMG International.

proceed to download

eJournals

backEUROtalk April, 2012

Loss of a foreign permanent establishment can be offset in Poland

Tax Alert
On 28th November 2011 the Supreme Administrative Court (“NSA”) issued a judgment (ref. no II FSK 929/11) according to which a Polish Company is entitled to offset the part of a loss of its foreign permanent establishment (“PE) which, due to its liquidation, was not utilized in the country where such a PE was situated.

Background
The case concerned a Company carrying out its business activities abroad via a foreign PE. In 2006 the Company initiated construction works in Hungary which led to the creation of the said PE. In 2007, the Hungarian PE reported a taxable loss. In 2008 the work in Hungary ended and the PE was liquidated.

Because the income earned in 2008 was lower than the loss generated in 2007, the Company was not able to utilize the entire amount of loss suffered in Hungary.

The Company applied for a binding ruling to confirm whether it was possible to offset the remaining part of the loss against its taxable profit in Poland.

Standpoint of the tax authorities

The Director of the Tax Chamber in Warsaw did not agree with theCompany’s standpoint and concluded that the provisions of the Polish Corporate Income Tax Act (“CIT Act”) do not provide for a possibility to account for a loss generated by a foreign PE of the Polish company. The Income / loss of the foreign PE is subject to taxation / can be offset only in the host country of a PE.

The Company appealed against the above mentioned decision to the Administrative Court in Warsaw. The Court decided that the Company was entitled to offset the loss generated in 2007 against its taxable profits in Poland after the liquidation of the Hungarian PE in Poland.

Standpoint of NSA
The Director of the Tax Chamber appealed against the Court’s judgment but the NSA rejected the appeal, deciding that it was not justified and that the appealed judgment was issued in line with the Polish legal provisions.

According to the NSA, the fact that liquidation of the foreign PE of the Company meant that full utilization of the Hungarian sourced loss was not possible, must lead to the conclusion that in accordance with the art. 7 par. 5 of the CIT Act, the Company is entitled to account for such loss in its Polish tax settlements in the part not utilized in the PE host country.

In the opinion of the NSA, the above is the only interpretation which allows avoidance of the infringement of the EU law and in particular violation of the principle of freedom of establishment, by creating circumstances under which certain entities are discriminated against others.

Consequences for the taxpayers
The above judgment opens up possibilities to amend the tax returns and account for any tax losses suffered through a liquidated PE under similar circumstances by taxpayers carrying out their business activities abroad. If you would like to discuss the above issue in more details or receive any additional information regarding our services, please do not hesitate to contact us.

Source: KPMG Poland - GAI

previous page

go top

search our site