Our Tax Practice represented a bank in a dispute with the tax authorities over choosing to tax interest on bonds and loans at the 3% rate (under articles 18-21 of the Act amending the Personal Income Tax Act, Corporate Income Tax Act, Tax Code and Certain Other Acts of 23 October 2018).

DZP’s client relied on regulations addressed to Polish entities that raise capital in international markets in various schemes based on issuing bonds and related loans. They were the legislator’s response to the problem of the impossibility to identify taxpayers in foreign regulated trading and the resultant difficulties in fulfilling tax agent’s obligations correctly.

Artur Nowak, Co-Head of the Practice, Grzegorz Sprawka, Tax Partner and Michalina Woźny, Senior Tax Consultant advised the bank during its dispute over whether it could choose to apply lump-sum tax at the 3% rate of interest on loans paid to a foreign affiliate. The essence of the case was to determine whether the taxation at the 3% rate could only be chosen for interest on a loan within the meaning of civil law (as the authorities argued) or (as the bank argued) also for interest on a loan in the broad sense, i.e. any transaction regardless of its legal nature in which there capital is transferred in exchange for interest, provided that the loan is connected with a bond issue. The Voivodship Administrative Court in Warsaw did not accept the bank’s argumentation and issued an unfavourable judgment in the first instance.

On 20 February 2024, as a result of a cassation appeal prepared by DZP’s Tax Practice, the Supreme Administrative Court set aside the appealed judgment, sharing the taxpayer’s multifaceted argumentation (case no. II FSK 671/21). This decision is extremely important not only for the client, but also for other taxpayers who have used schemes based on bond issues and related loan transactions in the past.