The tax man taketh, but occasionally he giveth back

You may recall a few columns back we discussed the newly introduced 2% turnover tax on all capital transfers out of Poland by individuals. You'll be pleased to hear that the tax man has recently issued an ordinance clarifying the new provisions, confirming a waiver of the 2% flat rate tax for all non-residents - that is, individuals whose permanent place of residence is not Poland (most expatriates). Even better news is that it's effective, in relation to all such transactions by non-residents, from Jan. 1, 2002 to Dec. 31, 2003. The burning question now is whether banks will be ready to refund the money they have so diligently withheld.

Layman's lowdown on VAT Now onto meatier subject matter and the recent introduction of further changes to the VAT law, specifically the taxation of licenses and the transfer of selected property rights. Before I jump in to give you a layman's lowdown on these changes let me extend my thanks to fellow manager and VAT expert Radek Szczźch for explaining this to me. The amended legislation extends VAT-able services to include: " License granting or license authorization, or transfer of authors' copyrights according to copyright law, with respect of computer programs,

" Sale of rights and license or sub-license granting according to industrial property law; that is, disposing of rights or authorizing the use of inventions (patents), trademarks, utility and industrial designs, geographical indications and topographies of integrated circuits. VAT will also be chargeable on transfers for use of joint trademarks or joint guarantee trademarks according to industrial property law.

The amended law introduces place-of-supply rules to the above services. These rules indicate who is liable to tax (service provider vs. service recipient) and on which operations tax is chargeable (domestic sale or import of services).

Accordingly: " Where both the service provider and the service recipient are Polish entities (based or resident on Polish territory), authorities determine that the service has been provided in Poland. For the service provider this will qualify as domestic sales taxable at the 22% rate.

" Where the service provider is a Polish entity while the service recipient a foreign entity, authorities generally determine that the service has been provided abroad; for the service provider the transaction will qualify as export of services, taxable at the 0% rate.

" Where the service provider is a Polish entity and the foreign recipient is a VAT payer in Poland, authorities determine the service has been supplied where the recipient carries on the business related to that service.

" Where the service provider is a foreign entity while the service recipient is a Polish entity, authorities deem this a service supplied in Poland. For the service recipient the transaction will qualify as import of services, taxable at the 22% rate.

For license granting and intellectual property rights transfer, then, the tax point is when the payment is received (or made, in the case of imported services) in whole or in part, and not later than the payment deadline. The revised law does not govern VAT invoicing on licenses granting services, which should be set out in VAT implementing regulations and which to date have not been amended to reflect the new regulations. However, as I understand it, the rules on invoicing the services in question are likely to be the same as those applicable to other services with specifically defined tax points, such as lease services, where the tax point is analogous to that of licenses. In this situation the taxpayer is liable to issue a VAT invoice on a license no later than on the tax point date (that is, when the payment is received in whole or in part or the payment deadline expires). And not earlier than 30 days before that date. Based on the amended law, VAT will apply to licenses granted and royalties paid on licenses after implementation of the new regulations. However, the legislature has issued interim provisions, which allow taxpayers not to charge tax on licenses and sub licenses granted on the basis of contracts executed before the implementation of the amendments (without regard for any changes to such contracts made after that date). The interim provisions and the amendments take effect on March 26.

Royalties associated with such licenses will not be subject to VAT for a period of two years provided that the taxpayer registers the license contract with the tax office within 30 days of March 26 (or April 25 at the latest). Now would probably be a good time to review your license contracts (for licenses received from and granted to others) to decide whether they should be filed for registration with the tax office. Please note that the decision to register a license is not invariably beneficial for the parties. Such decisions should be based on an analysis of a number of factors that affect the licensor's and licensee's tax burdens. The key factors include: " The licensor's treatment of input VAT and impact of the registration on his sales structure,

" The licensee's deductibility of input VAT on the license received, particularly with respect to taxpayers carrying on VAT-exempt activities or entities not registered as VAT payers,

" The contractual clauses concerning potential VAT-ability of the license, particularly the pricing rules.

In deciding whether to register the contract, the criteria relevant to domestic transactions may differ from those applicable to cross-border operations. Please remember that the possibility of registering licenses to avoid taxation applies solely to contracts executed before the implementation of the revised law. Therefore, it is advisable to execute any license contracts currently under negotiation or to introduce amendments to any licenses already in place as soon as possible. This way they can be registered with the tax office.

Anna Szymańska is a tax senior manager in the Warsaw office of Andersen.