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Withholding tax on cloud computing services

Withholding tax is tax levied at a fixed rate on certain types of revenue generated in Poland by foreign firms, i.e. firms that do not have their registered seat or management board in Poland. This tax is paid by the Polish firms when they pay the fee. The question is whether the fee paid by Polish firms that use cloud computing services of foreign providers is subject to withholding tax.

Certain types of revenue generated by foreign firms in Poland are subject to withholding tax at 10% or 20%, for example where this concerns revenue from copyright or related rights, a right to use industrial devices, or also for data processing services. The amount of withholding tax might also be specified in a cross-border treaty between Poland and the country in which the other firm has its place of business.

Revenue from cloud computing services is not listed specifically as one of the types of revenue for which withholding tax has to be remitted. Despite this, there is uncertainty in practice as to whether revenue from a service provided using cloud computing can be classed for example as a fee for the right to use industrial devices, revenue from copyright or related rights, or revenue for data processing services, which is revenue subject to withholding tax. To date, the standpoint presented by tax authorities on this issue has varied, but the tendency in administrative court case law is to conclude that revenue from cloud computing services is not subject to withholding tax. This is demonstrated by a recent ruling by the Poznań Voivodship Administrative Court of 2 June 2021 in case I SA/Po 89/21.

The court found that services which are access to data, applications, and other information technology resources that are stored in a cloud and serve functional purposes do not constitute industrial devices because they are not designated as a means of operating a company’s manufacturing process. This in turn means that a company is not required to remit withholding tax on the fee paid to the cloud computing service provider.

Meanwhile, the court acknowledged that access to cloud computing services may be classed as industrial devices in certain cases, for instance when the service is used to operate a manufacturing process and has a close functional link to that process. In such cases, the remitter is required to collect withholding tax. Similarly, where the scope of functions of the cloud computing service concerned extends beyond data storage alone, that service may be subject to withholding tax as a data processing service.

At the same time, there is no definitive answer to the question of whether withholding tax is due for cloud computing services under Polish law, and this will mainly be determined by the nature of the service. Therefore, the only effective means of ensuring adequate safety under tax law with respect to this issue is to obtain an individual tax ruling.