Dependent agent and the risk of creation of a permanent establishment in Poland

This article answers the following questions:

• What is an example of a dependent agent of a foreign enterprise?
• What kind of tax risk is associated with the activities of a sales representative working in Poland on behalf of a foreign enterprise?
• What is the approach of the tax authorities when a permanent establishment (PE) is constituted in Poland through the activities of a sales representative?

A foreign enterprise carrying on business in a way which causes the creation of a permanent establishment in Poland must pay income tax in our country on the revenues generated by the foreign establishment. To avoid unexpected problems and penalties which can be imposed on companies following tax proceedings or tax audits, it is recommended to take a closer look at the actions taken by the company (and its dependent agents) and analyse the risk of creation of a permanent establishment in Poland.

What kind of business activity is treated as a foreign permanent establishment (PE) in Poland? 

In accordance with the Polish Corporate Income Tax Act (the CIT Act), one of the situations in which a foreign permanent establishment is created is through a person who acts in the name and on behalf of a foreign company if this person has an authority to conclude contracts in the name of that company and actually exercises that authority, unless it is otherwise set out in a double tax treaty concluded between the home state of the company and Poland.

The Model Tax Convention of the Organisation for Economic Co-operation and Development (the OECD Model) states that a permanent establishment of a foreign enterprise arises if a person working on its behalf in a given state:

• is not an independent agent,
• acts in the name of the enterprise, and
• has, and habitually exercises, an authority to conclude contracts in the name of the enterprise in that state (being a contracting state).

Thus, the actions of a dependent agent in another country will result in the creation of a permanent establishment there.

Who is a dependent agent?

As it stems from the Commentary to the OECD Model, having and exercising an authority to conclude contracts is not limited only to an agent who enters into contracts literally in the name of the enterprise. A dependent agent is also a person who concludes contracts which are binding on the enterprise even if those contracts are not literally in its name. In such a case, the lack of active involvement in transactions by the enterprise may be indicative of granting a relevant authority to the agent. 

In accordance with the individual tax ruling of the Head of the National Revenue Administration Information Centre of 30 January 2025, ref. no. 0114-KDIP2-1.4010.646.2024.2.MW, persons without a power of attorney within the meaning of the civil law but with an authority to negotiate all the elements of a contract in a way which is binding on the enterprise are treated as dependent agents of the enterprise.

This is regardless of whether the contract is concluded by the person acting in the name of the enterprise or the enterprise itself.

In addition, the Commentary to the OECD Model states that a person who follows detailed instructions of or is subject to comprehensive control by the enterprise is a dependent agent. Another aspect of a dependent agent status is liability: if the enterprise is liable for the agent's actions, the risk of a permanent establishment coming into existence and tax being charged on the foreign company in Poland is viable.

When do the actions of a sales representative involve the risk of creating a permanent establishment (PE)?

It must be emphasised in the first place that the mere fact of a foreign enterprise having a sales representative in Poland will not always cause a permanent establishment to be created. In order to determine whether or not the foreign enterprise has a limited tax liability in Poland, it must be checked if the actions of the sales representative fulfil the criteria for the creation of a permanent establishment in Poland. To do this, the following three questions must be considered:

• Does the sales representative act in Poland in the name of the foreign enterprise?
• Does this person conclude or play a key role in causing the conclusion of contracts which are routinely entered into without major modifications by the enterprise?
• Does this person participate in:
  • concluding contracts on behalf of the enterprise?
  • concluding contracts concerning transfer of property or assignment of the right to use property owned by the enterprise or property which the enterprise has the right to use?
  • concluding contracts concerning the provision of services by the enterprise?

If the answer to any of the above questions is "yes", the sales representative’s actions involve the risk of creating a permanent establishment of the foreign enterprise in Poland.

The practice of Polish tax authorities in determining the creation of a permanent establishment through a sales representative

In its individual tax ruling of 26 April 2023, ref. no. 0111-KDIB1-2.4010.93.2023.1.AW, the Head of the National Revenue Administration Information Centre (NRAIC) decided that the activities of an employee who supported clients in business transformation processes constituted the activities of a dependent agent of a company dealing with restructuring advisory. Such a position was adopted despite the fact that the said person was not authorised to make any decisions in the name of the foreign company or conduct negotiations of essential terms of contracts (which were concluded directly by the company).

The Head of the NRAIC ruled that the compelling argument for the creation of a permanent establishment in that case was the fact that the activities of the agent were of significant importance to the operations of the enterprise. The authority stated that the contracts were only formally concluded by the company, and it was the employee acting in Poland who played a key role in causing the contracts to be concluded.

On the other hand, in its individual tax ruling of 1 September 2023, ref. no. 0114-KDIP2-1.4010.371.2023.1.PP, the Head of the NRAIC agreed with the position of a company which collaborated with local Polish truck and parts dealers and acknowledged that such activities did not cause the creation of a permanent establishment of the foreign enterprise in our country.

The independence of these dealers was evidenced by the lack of an authority to conclude contracts in the name and on behalf of the company, conducting activities at the dealers' own risk, the lack of performance assessment by the company, or the freedom to choose part brands among other things.

When determining whether or not the obligation to pay corporate income tax exists, it is advisable to consult with experts 

As you can see from the above examples, in verifying whether the activities of an agent of a foreign company cause the creation of a foreign establishment in Poland, a careful analysis of a number of factors is necessary. To establish facts and avoid penalties, a thorough examination of business operations is recommended with the support of professional tax advisors who are experienced in determining whether or not the activities of an agent will in a particular case generate income tax obligations in Poland for the company.

If you would like to check the risk of tax implications relating to the actions of agents of foreign companies in Poland, feel free to contact us. Our specialists will answer all your questions and quickly verify if the activities of such persons will create a permanent establishment and, consequently, the obligation to pay corporate income tax in Poland.