Does a remote employee create a permanent establishment in Poland?

The Administrative Court in Gliwice ruled in a judgment of 24 June 2024 (ref. I SA/Gl 1679/23) that the performance of remote work by an employee of a foreign company in Poland does not create a permanent establishment of a foreign company in Poland. The judgement is not final.

Background

A German company was set to employ an employee who would perform most of the work remotely from his flat Poland. The employee would use company-provided tools (laptop, phone, and colorimeter) and the company could inspect the workplace for safety and compliance. However, the employee did not perform managerial tasks, sign contracts, or negotiate on behalf of the company.

The Polish Tax Authorities [PTA] took the position that, even though the company did not rent any premises in Poland, the employee’s home (where the company equipment was used) could be considered a permanent establishment, and that the employee acted as a dependent representative of the company.

The applicant argued that the employee did not perform activities identical to those of the employer, was not authorised to make decisions on behalf of the company and did not have the authority to sign contracts. For this reason, a remote employee working in in Poland should not create a permanent establishment for the German company.

The PTA in its opinion took a different view. The PTA, holding that although the Company did not rent any premises in Poland, the transfer of work tools to the employee involves the creation of a permanent establishment, which could be the employee’s flat. Moreover, the PTA considered the employee to be a dependent representative of the company and pointed out that the activity performed by the employee could not be considered preparatory or ancillary to the main object of the employer’s activity.

Position of the Court

The Administrative Court in Gliwice disagreed with the PTA assessment. The court emphasised that a PE must have a physical nature and be at least indirectly related to the conduct of business activities and the income  generated. The court found that the company had no premises or space in Poland where it could carry out its business activities. The company did not require the employee to use his or her flat to carry out activities on its behalf but only agreed to the employee’s choice to work remotely from home, with the employee being free to carry out work from location of his choice.

The court also emphasised that the work tools provided – laptop, colourimeter, telephone – were mobile devices that could be carried and used anywhere. Referring to the Commentary to the OECD MTC, the court pointed out that an employee’s private home used as a “home office” does not constitute PE if the employee performs work from his home in one country rather than from an office in another country. The court further noted that the employee does not have the authority to enter into contracts, negotiate the terms of contracts, participate in sales or make decisions on behalf of the company, which precludes the possibility of establishing a PE on the premises.

Significance of the ruling

The ruling is significant because it clarifies that the mere fact that employees of a foreign company work remotely in Poland, using company equipment, does not automatically result in the creation of a PE for the foreign company. However, each case must be assessed on its own merits.

At MDDP, we have assisted a number of foreign companies in assessing whether their remote employees give rise to a tax liability in Poland due to the establishment of a tax permanent establishment. We also assist both foreign and Polish employers and employees in understanding and managing their tax obligations in Poland.