The retail sales tax (in effect in the Polish legal system since 2016) covers income earned by taxpayers from the sale of goods to consumers.
As a general rule, turnover generated from the sale of services is not subject to tax, but the sale of goods for consideration is. However, the law in this regard points to one exception that has become the axis of a global dispute between taxpayers and tax authorities.
According to the wording of the provision, income from paid disposal of goods also includes a situation in which the goods disposed of are accompanied by the provision of a separately unrecorded service.
The dispute was mostly over the linguistic interpretation of the phrase “accompany.”
Tax authorities began to make – as part of individual interpretations issued – a strongly broadening interpretation of the concept of “service accompanying the goods sold.” This is because, according to the position presented by the tax authorities, whenever there is both a sale of goods and the provision of services – as part of a single service – there is a retail sale – taxable. Thus, only intangible services would not be subject to retail sales tax.
In the optics of the authorities, the use of the word “accompany” by the legislator should not lead to the conclusion of the legitimacy of differentiating the components of the transaction – into a part of a dominant character and only auxiliary. The only condition for taxation would be that the good and service occur simultaneously (occur together). Their mutual hierarchy would remain meaningless.
Marcin Palusinski and Krzysztof Sliwinski of DSK Law Firm’s tax department represented a client that provides numerous maintenance services that require the use of many materials (paints, oils, spare parts).
Our specialists – disagreeing with the position of the tax authorities, argued against an expansive interpretation – pointing out that through the use of the word “accompany” the legislator introduced a clear hierarchy and distinction between the leading element of the transaction and its auxiliary component.
Thus, the sale of a stand-alone good and the sale of a good accompanied by a separately unrecorded service may be taxed. However, there is no basis for taxing the sale of a service that is accompanied by goods (i.e., material consumed to provide that service).
In light of the primacy of linguistic interpretation, the verb “to accompany” in the first instance should be understood as “to assist,” which clearly emphasizes the dominant meaning of one component – it is the storm that is accompanied by heavy rains (not the other way around) and the invitee is given a named guest – with a possible companion.
The Provincial Administrative Court agreed with the position presented by Martin and Christopher. The position was finally confirmed by the Supreme Administrative Court as well.
This was a precedent-setting ruling by the Supreme Administrative Court, in which it confirmed the far from vague nature of the regulations and reminded, with reference to Art. 2a of the Tax Ordinance that irremovable doubts about the content of the tax law shall be resolved in favor of the taxpayer.
As a result, it should have been concluded that the sale of services requiring the consumption of materials does not constitute retail sales within the meaning of the Act and thus is not subject to retail sales tax.
If you have questions about retail sales tax or other tax matters – contact Marcin or Christopher.
