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The 183-day rule is not applicable and the tax is chargeable in a foreign state if there exists an economic employer in a state of secondment


The employment exercised outside a state of tax residence may be connected with necessity for a taxpayer to pay tax to foreign tax authorities. A fact decisive for charging tax, if any, may be the existence of the so called economic employer in a state of secondment, which was confirmed by the Director of the Tax Chamber in Katowice in a binding ruling issued on 22 April 2015 for an Austrian tax resident, represented by tax advisors from ATA Tax Sp. z o.o., who had been seconded to work in Poland by his Austrian employer (ref. no. IPPB4/4511-115/15-2/JK2).

In most agreements on the avoidance of double taxation, including that between Poland and Austria (hereinafter: ADT), the issue of charging tax on remuneration from employment exercised in a state other than the employee’s state of residence is regulated by Article 15. As a general rule, remuneration derived by a resident of a given state in respect of an employment shall be taxable only in that state. But if the employment is exercised in the other state, such remuneration may be taxed in that other state. However, Article 15(2) of ADT gives a possibility to depart from the above general rule. The so called “183-day rule” allows continuing taxation in the state of residence, provided that all of the following conditions are met at the same time:

  1. the recipient is present in Poland for a period or periods not exceeding in the aggregate 183 days in any tax year, and
  2. the remuneration is paid by, or on behalf of an employer who is not a resident of Poland, and
  3. the remuneration is not borne by a permanent establishment which the employer has in Poland.

The second condition refers to the so called concept of an economic employer (opposite to the concept of the so called formal employer), which was confirmed by the Minister of Finance in said binding ruling. According to the Commentary to the OECD Model Convention, an economic employer shall be understood as an entity which bears the cost of the remuneration, has the right to carry out works, and assumes the related risk and responsibility. In order to determine whether there exists other than formal employment relationship, the following criteria should be taken into consideration: 

  • who has authority to instruct the individual regarding the manner in which work has to be performed,
  • who has control and responsibility for the place at which the work is performed,
  • the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided,
  • who puts the tools and materials necessary for the work at individual’s disposal,
  • who determines the number and qualifications of the individuals performing the work,
  • who has the right to select the individual who will perform the work and to terminate the contractual arrangements entered into with that individual for that purpose,
  • who has the right to impose disciplinary sanctions related to the work of that individual,
  • who determines the holidays and work schedule of the individual.

At the same time, the above criteria as well as other guidance included in the Commentary should help in determining whether in the actual situation performance is active or passive – i.e. whether services provided by the individual are to be treated as provided under employment or as performed under a service contract concluded between the two enterprises. In the case of passive performance and finding that the economic employer exists in the state of secondment, the individual’s income may be taxed in the state of secondment also if the individual is present in that state for a period  not exceeding 183 days. In practice, the conclusion that services provided by the individual make an integral part of the enterprise to which they are supplied may be supported by factors such as e.g. application of the work rules of the host company, especially as regards occupational health and safety, and regulations of the host company on working time and days off work, making arrangements with respect to holidays with representatives of the host company, the fact that the host company puts at the individual’s disposal tools and materials necessary for work performance (e.g. a laptop, car, phone) and so actually bears responsibility for the results of and risk related to the work, especially if the contract on secondment includes no arrangements regarding sanctions for  sending the individual back because of unsatisfactory results of the work. 

The concept of an economic employer is also signification for interpretation of the last condition included in the “183-days rule”. If the foreign entity does not have in Poland a permanent establishment referred to in ADT, or even when it does, if such permanent establishment is not an economic employer, this condition will be met.

The issues considered above seem to be significant primarily for all entities seconding their employees to work not under projects carried out in Poland but to work directly for the benefit of other companies – most often related to them. It is then worth checking whether the division of costs, risk and responsibilities as adopted between the parties does not constitute an economic employer in Poland. In such case it may have no importance whether the length of stay in the host state exceeds that notable 183 days and also that the state of residence applies only the concept of a formal employer.