This article is intended to illustrate an increasingly significant problem, which relates to the application of the abolition relief by the Polish tax authorities with respect to Seafarers.
It should be emphasized that our stance on the right to abolition relief with respect to Brazil (Guernsey, Norway in 2014, Singapore from 01.01.2015, Saudi Arabia, Qatar) remains unchanged, as it is compliant with generally applicable laws. Some of the tax authorities, however, unlawfully attempt to deny abolition relief to some seafarers. Interestingly, the same tax authorities apply identical Polish regulations on abolition relief variously in case of different countries. For instance, the First Revenue Office in Gdynia grants abolition relief in case of Norway, without conditioning this decision upon payment of foreign tax. In case of Brazil, however, the same office refuses abolition relief, making it dependent on foreign tax payment, which does not derive from any provisions of tax law.
National provisions and income derived by Seafarers in Brazil
As mentioned in the previous publications, Poland has not concluded an agreement for the avoidance of double taxation with Brazil. Thus, both legal and fiscal status of taxpayers is determined by the national law, and the proportional deduction method shall be applicable.
In this case, the tax obligation is transferred to Poland, and the proportional deduction method is of use. Due to the aforesaid, income of Seafarers is subjected to all national regulations, which apply to such method of double taxation avoidance, including the right to the abolition relief.
According to art. 27 (9) of the PIT act, if a taxpayer referred to in art. 3 (1) derives income from activity or sources outside the Republic of Poland and no double taxation avoidance agreement stipulates to use the method defined in (8), or if no agreement was concluded by the Republic of Poland with a state where the income is derived, such income shall be combined with sources of income within the Republic of Poland. In such an event, tax computed with respect to the total income is subject to deduction in the amount of tax paid abroad. Such deduction may not, however, exceed this part of tax computed prior to deduction, which proportionally falls on income derived in a foreign state. The provisions of art. 11 (3) and (4) shall apply accordingly.
In case of a taxpayer referred to in art. 3 (1), who derives income exclusively from activity outside the Republic of Poland or from sources outside the Polish territory, which is not exempt from tax under agreements for the avoidance of double taxation or agreements with a country where income is derived, the principles set out in (9) shall apply accordingly (art. 27 (9a) of the abovementioned Act).
A person who derived income subjected to computation using the method of proportional deduction is required to submit an annual tax return in Poland, even if he/she did not derive any income in Poland.
Those, who derived income from employment or business activity taxable in Poland, subjected to computation with the proportional deduction method, shall be entitled to deduct abolition relief from their income tax, which is a difference between tax calculated using the method of proportional deduction and tax computed according to the method of exemption with progression.
Due to art. 27g (1) of the Personal Income Tax Act, taxpayer subjected to tax obligation stipulated in article 3.1 who accounts for foreign income derived in a given tax year:
1) from sources specified in Articles 12.1, 13, 14, or
2) from property rights in the scope of copyrights and neighboring rights as understood in regard to separate regulations, from artistic, literary, scientific, educational, columnist activity conducted outside the Republic of Poland, except for income (revenue) derived from usage or management of such right,
- may deduct the amount calculated pursuant to (2) from income tax computed due to art. 27 and reduced by the amount of premium referred to in art. 27b.
According to art. 27g (2) of the PIT Act, a difference between tax calculated in accordance with art. 27 (9) or (9a) (i.e. the method of proportional deduction) and tax on income from sources referred to in (1), with respect to principles stipulated in art. 27 (8) (i.e. the method of exemption with progression), shall be deducted.
The eligibility for the abolition relief does not depend on taxation of foreign income in the state of source. It is also irrelevant whether the Republic of Poland has concluded an agreement for the avoidance of double taxation with that state. The bottom line is that foreign income is taxable in the Republic of Poland using the method of proportional deduction. This method is also applicable in regard to states, which have not entered into agreements for the avoidance of double taxation with the Republic of Poland.
As indicated before, the relief in question may not be used with respect to income derived within the states stipulated in The Ordinance of the Minister of Finance on states and territories using the harmful tax competition in the field of personal income tax, i.e., the so-called “tax heavens”.
To sum up, in Poland, the provision of art. 27g of Personal Income Tax Act envisaging the abolition relief applies. In practice, this means that one\'s tax may be reduced by the difference between tax calculated using the method of proportional deduction and tax computed using the method of exemption with progression.
Different standpoints of tax authorities – Brazil and abolition relief
Despite the literal wording of legal provisions, the views of the Polish tax authorities vary.
In Pomerania, the abolition relief right is consistently questioned by the Revenue Office in Puck (interestingly, since September 2014, the Revenue Office in Puck has begun to issue positive decisions in regard to Norwegian ship owners, but this has only concerned several cases) as well as by the First and the Second Revenue Office in Gdynia, which argue that a taxpayer is not eligible for the abolition relief due to lack of foreign tax payment certificates. The standpoint of the Director of the Tax Chamber in Gdańsk is also worrisome in this regard, as it consistently sustains erroneous stance of the authorities without a thorough analysis of the legal provisions and individual tax interpretations, issued in similar cases. This leads to a situation in which a Seafarer will, de facto, be able to protect his legal interest in the proceedings before the Court, i.e. the Regional Administrative Court.
In Szczecin, however, the entitlement to the abolition relief is dependent on a revenue office - the First Tax Office in Szczecin denies Seafarers the right to the abolition relief, whilst the Second Revenue Office in Szczecin grants it. Moreover, the Director of the Tax Chamber in Szczecin, acting as a substantive body reviewing the case, unfortunately upheld the erroneous decision of the First Revenue Office in Szczecin.
Each of the mentioned tax authorities questions the taxpayer\'s right to the abolition relief, due to the fact that no tax was paid in Brazil, even though the jurisprudence clearly shows that it is not a prerequisite for application for such relief. Moreover, the authorities inaccurately claim that only the payment of tax in Brazil entitled a party to claim the abolition relief, as only then the income might be computed according to the provision of art. 29 (9) of the PIT Act, to which, as the authority asserted, art. 27g of the PIT Act directly refers. The standpoint on this issue most probably stems from wrongful interpretation of the Polish provisions, since in this case the abolition relief is of use. Moreover, the authorities claim that the method stipulated in art. 27(9) of the PIT Act was not adopted, as the income was not taxable in Brazil. The aforesaid demonstrates a flagrant breach of law committed by the relevant authorities in regard to application and interpretation of the PIT Act provisions.
At this point, it should be noted that in the judgment of the Regional Administrative Court in Gdansk dated on 17 November 2010, the Court indicated that the obligation to file a tax return specified in art. 4 (1) point 1 b of the Act of 25 July 2008 on special instruments for taxpayers obtaining some of their income outside the Republic of Poland, concerns only those taxpayers, who, being obliged to do so in the state of income, actually paid their tax there. If a taxpayer does not pay the income tax abroad, because he/she is under no obligation to do so, he/she is not automatically deprived of rights stipulated in the abolition Act, as no such consequence is envisaged therein. This standpoint was expressed, inter alia, in the statement of reasons for the act ratifying the regulation introduced in regard to Norway in 2014, as well as in numerous individual interpretations obtained by us in terms of the abolition relief in Poland.
Moreover, the right to the abolition relief in regard to Brazil is granted by, among others, the Revenue Offices in Gryfino and Chorzów.
Not without significance is the fact that, upon introduction of the abolition relief, the legislator sought to equalize the taxation methods. This, according to the taxpayer, proves the necessity to grant this relief in order to meet expectation of the legislator concerning institution of these provisions into the Polish legal system.
On the grounds of the Polish tax law it should be concluded that Seafarers are entitled to benefit from the abolition relief with respect to the contract work on vessels managed by Brazilian entities. The standpoint of the tax authorities, who make the right to the abolition relief dependent on payment of tax in Brazil, is erroneous and leads to levying tax on taxpayers on the basis of arbitrary premises and interpretations which are not legally binding, instead of basing them on the applicable law. Such practice is rather worrisome, as the tax authorities display far-reaching inconsistency in regard to application of provisions related to the abolition relief, e.g. by granting such relief in case of Norway in 2014, but denying it in case of Brazil and conditioning it upon a non-existent premise, i.e. the payment of tax abroad.
Considering the aforesaid, persons planning on claiming a reduction of advance tax payments are strongly advised to seek professional legal aid, as it is never certain, what the tax authority will act like in regard to a given case and in terms of a given state. Moreover, the very application forms for reduction of advance tax payments were designed to be simple and facile, yet they caused many setbacks to taxpayers and their representatives in 2014.
One can only hope that, in the light of experiences encountered in 2014, the revenue bodies will not be this rigorously inclined towards applications filed in 2015 and that any existing interpretational divergences will be unified, so that the actions of Polish tax authorities in respect to Seafarers comply with the applicable Polish law.
Radca Prawny Mateusz Romowicz
Aplikant Radcowski Ewelina Zgódka