This article answers the following questions:

• Do interest payments qualify as tax-deductible expenses?
• May interest on a loan granted to a Polish branch by a foreign company be treated as a tax-deductible expense?
• Under what conditions may internal financing costs be recognised as tax-deductible expenses?

On 30 July 2025, the Supreme Administrative Court, in a case in which RSM Poland’s tax advisors represented the taxpayer, issued a ruling of significance to taxpayers (case ref. II FSK 1423/22), confirming that a Polish branch of a foreign company may classify interest payments made to that foreign company as tax-deductible expenses.

Internal financing costs and the tax treatment of a foreign company’s branch in Poland

The case began with a request for a tax ruling submitted by the Polish branch of a foreign company. In the application, it was stated that the German company had taken out a euro-denominated loan in Germany. Importantly, the loan was obtained on arm’s length terms. The German company subsequently transferred part of the loan to the Polish branch. It is worth noting that the capital was made available by the German company in Polish złoty, and the interest rate was set at a market level appropriate for loans granted in that currency. The applicant also indicated that the company recognises income from the capital made available in Germany, while the Polish branch bears the related costs in Poland. 

The Polish branch approached the Head of the National Revenue Administration Information Centre (NRAIC) to ask whether the interest on the loan, paid by the branch to the company in connection with the loan granted, could be recognised as a tax-deductible expense.

The applicant stated that the settlements between the German company and the Polish branch are conducted in accordance with the OECD approach, under which a permanent establishment should be treated as an independent economic entity. In the applicant’s view, the interest paid by the branch constitutes a tax-deductible expense for the branch.

The position of the Head of NRAIC: interest payments cannot be recognised as tax-deductible expenses

The tax authority rejected the applicant’s position, arguing that the agreement between the German company and the Polish branch does not constitute a loan agreement within the meaning of the Civil Code. The authority stated that one cannot lend money to oneself, and the Polish branch is not a separate legal entity but merely an organisational and asset-based division of the company. Consequently, all income and expenses attributed to the Polish branch form part of the German company’s income and expenses, and transactions between them should be treated as neutral, thereby excluding the possibility of recognising interest payments as tax-deductible expenses. Additionally, the Head of NRAIC cited Article 16(1)(11) of the Corporate Income Tax Act, which stipulates that accrued but unpaid or remitted interest on liabilities—including loans and credits—shall not be considered tax-deductible expenses.

Voivodship Administrative Court sides with the branch: Interest may constitute a tax-deductible expense

The taxpayer challenged the authority’s interpretation and prevailed before the Voivodship Administrative Court (case no. III SA/Wa 345/22).

The Court ruled that the interest paid by the Polish branch—corresponding to the repayment of interest by the German company to the bank—may be recognised by the Polish branch as a tax-deductible expense. In its reasoning, the Court emphasised that the interest is directly linked to the operations of the Polish branch and meets the criteria for recognition as a tax expense under Article 15 of the Corporate Income Tax Act. Furthermore, the Court noted that the Head of NRAIC had incorrectly invoked Article 16(1)(11) of the CIT Act, as the interest in question had been paid by the Polish branch, rendering that provision inapplicable.

Supreme Administrative Court sides with the taxpayer: The Polish branch is entitled to deduct interest as a tax-deductible expense

The Supreme Administrative Court upheld the position of the Voivodship Administrative Court, confirming that the Polish branch is entitled to recognise interest on capital provided by the German company as a tax-deductible expense. The Court did not challenge the branch’s lack of separate legal personality.

The Supreme Administrative Court emphasised that the involvement of a foreign entrepreneur’s branch in the repayment costs of financing is relevant under Articles 15 and 16 of the Corporate Income Tax Act.

The Supreme Administrative Court found the position presented by the Head of NRAIC to be incorrect, namely that transactions between a company and its foreign branch are tax-neutral.

The adjudicating panel noted that if the position of the Head of NRAIC were deemed correct, double taxation treaties would become redundant, as transactions between a foreign entrepreneur’s branch and its head office would be treated as tax-neutral, with all income and expenses accounted for solely in the country of the head office’s residence.

Key takeaways from the Supreme Administrative Court ruling

• The judgment confirms that foreign branches of entities are entitled to deduct in Poland the costs related to financing provided by their foreign headquarters. According to the Supreme Administrative Court, the lack of separate legal personality does not affect the ability to include paid interest in tax-deductible expenses.
• The ruling highlights the need to consider principles arising from double taxation treaties and OECD guidelines when making tax settlements. This ensures both accuracy and compliance.
• Taxpayers should ensure that financing terms reflect market conditions and that transactions between the headquarters and the branch are properly documented. This is essential to demonstrate their economic rationale and compliance with tax regulations.