Recently, there have been reports in the press according to which the invoicing of a company by a shareholder or board member is an action subject to the General Anti-Avoidance Clause (GAAR Clause). This view is controversial, as there are quite a few arguments against the applicability of the GAAR to this type of situation..

What is the GAAR Clause about in the context of services performed in the B2B model?.

The Anti-Avoidance Clause is a certain special instrument whose purpose is to "seal" the tax system against such actions, which, while compliant with the law, lead to unauthorized, unapproved tax benefits. These activities are so artificial that it is difficult to justify them other than by achieving tax benefits. Very often, at the same time, the activities covered by the clause involve activities performed between related parties (such as a shareholder, a member of the board of directors and the company in which these persons hold their position).

As we wrote in another article (see here), invoicing a company by a shareholder or board member is a legitimate activity, but can lead to significant tax benefits. This is because the value of services provided by a board member/shareholder is generally an expense of the company (unlike dividends). On the other hand, income from such services is usually taxed more preferentially than dividends or the board member's salary from his or her position.

It is important to note that the performance of services in a B2B relationship has gained traction due to the introduction of Polish Governance legislation in 2022, which has resulted in a decline in the profitability of doing business as a sole proprietorship. As a result, a great deal of business in the SME sector has "shifted" to limited liability companies. These companies have one basic disadvantage - partners and companies are taxed twice (once at the company level and once at the partner level). For these reasons, many (very many!) taxpayers have decided that they will start working with their limited liability companies on the basis of B2B agreements and thus mitigate the negative effects of double taxation and provide liquidity in the form of monthly transfers for performing intangible services for the company.

The tax authorities are obviously aware of such practices. Matters are not made easier by the taxpayers themselves, who apply for interpretations on B2B relationships linking partners, board members with companies....

Thus, it can be said that the performance of services in the B2B model by shareholders/board members was something of a ticking time bomb that had to explode eventually. This happened at the beginning of 2023, when information circulated in the press about massive refusals to issue tax interpretations in factual situations involving the performance of intangible services by board members / partners as part of a business that involved the choice of a lump sum as a form of taxation.

In succor of the tax authorities came the administrative courts, which upheld the profiscal position.

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Procedure for issuing individual interpretations....

So, is indeed the invoicing of a company (which is a CIT taxpayer) by a partner, a member of the board of directors, subject to the GAAR Clause?
The answer to this question - as is usually the case in taxation - is full of nuances. However, there are quite a few arguments against this reasoning.

Let's start with how the procedure for issuing tax interpretations works. According to the Tax Ordinance:
"The issuance of an individual interpretation shall be refused, by way of a decision, with respect to those elements of a factual state or future event which are reasonably assumed to constitute an activity or element of an activity specified in Article 119a § 1 (...)."

The aforementioned Article 119a regulates the Clause GAAR. So, it follows from this provision that interpretations are not issued if there is a reasonable suspicion that certain activities may be subject to the GAAR Clause.

As we indicated above, the performance of services in the B2B model by a shareholder or board member as much as possible can be seen as such a pattern of conduct that is subject to the GAAR Clause, as there are features here that approximate typical behavior subject to the Clause (compliance with regulations, achievement of tax benefits, potentially artificial nature of the operation). In this regard, there is little doubt.

However, does the fact that a given model of B2B service performance creates a reasonable presumption of the application of the GAAR Clause mean that this instrument is applicable in a given case?

Let's answer straightforwardly: NO! So what does the final answer to the above question depend on? On whether the criteria of the GAAR Clause will apply in the individual situation of the taxpayer in question.

...and GAAR Clause criteria.

There are three criteria for the application of the GAAR Clause from the regulations:
1) Intent Criterion: It is met when achieving a tax benefit is the main or one of the main objectives of the action(s) in question;
2) Criteria of Contradiction: this premise is met when the tax benefit is, under the circumstances, contrary to the object or purpose of the tax law or provision in question;
3) Artificiality Criterion: in order for this criterion to be satisfied, the manner in which the act in question is performed must be artificial.

Of course, in practice, the conditions for applying these criteria are more elaborate. However, in our opinion, in most cases involving the invoicing of a company by a shareholder/manager in the course of business activities performed by these persons, the risk of meeting these criteria is low. First of all, it is difficult to consider that there is a condition of artificiality here, because in practice the provision of intangible services by members of the board of directors / partners is justified in many cases (provided, of course, that they have the appropriate qualifications); the company, thanks to such a solution, does not need to use external specialists, but benefits from the experience of people who know (or at least should know) the specifics of business operations of the entity.

In addition, it is difficult to consider that the increased risk of this type of situation being perceived as subject to the GAAR Clause is affected by the fact that the individual has chosen a lump sum as a form of taxation. The right to choose a form of taxation is, after all, a right granted explicitly by the legislature, and it would be doubtful to claim that this is an action taken contrary to the purpose of the Tax Law (or its object).

It should be borne in mind that due to the current unfavorable position of the courts, tax authorities may actually attempt to challenge structures involving the provision of B2B services by board members / partners. Therefore, it is worth considering drafting - in writing - a collection of arguments against the applicability of the GAAR Clause in a specific case.