The Tax Office is taking a rigid stance regarding the members of company boards who optimize taxation by collaborating with the company, both through their position on the board and by providing additional services to the company as part of an individual business activity taxed at a linear 19% Personal Income Tax (PIT) rate.
How to optimize a manager’s income?
A common way to optimize a manager’s income is to divide their responsibilities so that they perform their duties based on a resolution appointing them as a board member and a civil law agreement for the provision of advisory or marketing services – now as an entrepreneur. Activities performed based on the second agreement must, of course, be entirely different from managing the company and should be carried out outside the time of duties related to serving on the board. This division is necessary because income from management agreements cannot be accounted for within business activity. Article 13, point 9 of the PIT Act prohibits this – a 19% linear tax cannot be paid on such income. At the same time, the provisions of the PIT Act (specifically, Article 9a and 30c) do not exclude taxation at a linear rate for other activities performed for the company under a management agreement. This interpretation of the PIT Act has been repeatedly accepted by the Director of the National Tax Information in individual interpretations. Since managers usually have high incomes, there is a high probability that their annual income will exceed PLN 120,000, and they will pay 32% PIT on the surplus. Therefore, obtaining part of the income through business activity taxed at a 19% linear PIT is advantageous.
Why did the Tax Office consider the action artificial?
One of the managers wanted to terminate an employment contract with the company and continue working with the company as an entrepreneur, issuing VAT invoices, and serving on the board of the company based on appointment. The manager applied for an advance tax ruling to protect against the anti-avoidance clause. However, the Head of the National Tax Administration (NTA) refused to issue an advance tax ruling that would protect the board member against the anti-avoidance clause, as he saw tax avoidance. The refusal to issue the advance tax ruling was issued on August 18, 2023 (ref. DKP3.8082.14.2022). The Head of the NTA focused primarily on the tax benefit that the manager would achieve through the planned actions. This way, he would avoid paying 32% tax on the surplus of annual income over PLN 120,000. The Head of the NTA also deemed that obtaining a tax benefit would be one of the main purposes of the planned change and that it would also be an artificial action because the company in which the manager had been employed would remain the sole counterparty of the entrepreneur. In the opinion of the Head of the NTA, the entrepreneur would perform actions that a reasonably acting board member would already be obliged to perform. In practice, he would advise (in terms of the quality of systems) himself as a board member. The negative decision of the Head of the NTA shows that such moves can be highly tax-risky – it is necessary to carefully separate the manager’s duties and provide significant justification for dividing responsibilities to avoid the accusation of tax avoidance.