Administrative courts are adamant to the tax authorities in terms of the classification of hosting services – on August 25, 2022, the District Administrative Court in Krakow issued a judgment with reference number I SA/Kr 101/22, in which it agreed with the taxpayer, stating unequivocally that fees for hosting services are not subject to the withholding tax (WHT).
The classification of hosting services in the context of withholding tax has been a controversial issue for many years. The tax authorities were adamant in this respect for a long time and the tax interpretations issued indicated that data storage services should be subject to WHT.
Administrative courts disagreed with this, the most striking example of which was the judgment of the Supreme Administrative Court of April 9, 2019 (reference number II FSK 1120/17). The position maintained in this spirit was presented in the judgment of the District Administrative Court in Kraków of August 25, 2022 (file reference number I SA/Kr 101/22).
The court, questioning the position of the tax office, pointed out that the server is not an “industrial device” and its user – as a result of concluding a hosting agreement – does not become the recipient of the service. With this interpretation, hosting services cannot be treated otherwise than as merely a service of sharing disk space on the recipient’s servers – and such a service is not listed in the catalog of Art. 21 sec. 1 of the Polish CIT Act.
Taking into account such a shaped, uniform line of interpretation of judgments, a breakthrough has been visible for some time in the interpretations issued. The tax office is slowly changing its approach and agreeing to taxpayers not to be subject to withholding tax for hosting services.
An example of such a position is the individual ruling of August 24, 2022 of the Director of the National Tax Information (No. 0111-KDIB1-2.4010.256.2018.10.DP), where the authority agreed with the taxpayer’s position that there is no obligation to calculate, collect and income tax, the so-called withholding tax on receivables for data storage services, due to the fact that such services are not listed in Art. 21 sec. 1 of the Polish CIT Act, in particular, they do not constitute data processing services and services of a similar nature.
At the same time, despite the changing position of the tax authorities and the favorable position of the courts, we recommend caution with regard to taxation with tax at source for hosting services, where contractual provisions for the rental of hosting space are of great importance.
Author: Piotr Błaszczyk