Posting of employees and the economic employer concept

Many Polish businesses operating outside Poland and posting their employees to work abroad may wonder what the concept of an economic employer means and how it affects their obligations as personal income tax (PIT) remitters.

This issue has significant practical consequences. Failure to identify the economic employer, or identifying it incorrectly, may result in the employee’s remuneration and the related tax obligations being accounted for incorrectly.

In this article, we take a closer look at this concept, using as an example one of the most recent positions presented by the Director of the National Revenue Information [Director of the KIS] in the individual tax ruling of 12 June 2026, reference number 0115-KDIT2.4011.281.2026.2.ENB.

The company’s position

The case examined by the Director of the KIS concerned a Polish company engaged in metal treatment and coating, which provided subcontracting services involving anti-corrosion and painting work on ships under an agreement with a Danish shipyard. For this purpose, the company posted its employees to Denmark. The employees remained employed under Polish employment contracts, were Polish tax residents, and their presence in Denmark did not exceed a total of 183 days in any twelve-month period commencing or ending in the relevant tax year.

The company’s request concerned two cooperation models. Under the first model, the Danish shipyard would remain the direct customer. Under the second model, the company planned to establish its own Danish operating company, which would act as the formal customer by purchasing services from the Polish company and subsequently supplying them to the shipyard.

In both cases, the company took the position that the employees’ remuneration should be taxable exclusively in Poland. It argued that, in its view, all the conditions set out in Article 14(2) of the double tax treaty concluded between Poland and Denmark [DTT] were met. In addition, the company paid the employees’ remuneration, bore the risks associated with their work, determined their working time and annual leave, and paid social security contributions to the Polish Social Insurance Institution (ZUS). It therefore remained both their formal and actual employer.

Conditions for the taxation of remuneration under the DTT

The tax authority disagreed with this position and concluded that not all the conditions specified in Article 14(2) of the DTT were met in the circumstances under review. Only the cumulative fulfilment of all the conditions stipulated in the DTT would allow the remuneration of the posted employees to be taxed exclusively in Poland. Accordingly, the following conditions would have to be met:

• the employee is present in Denmark for a period or periods not exceeding a total of 183 days in any twelve-month period; and
• the employee’s remuneration is paid by a Polish employer that is not resident in Denmark; and
• the remuneration is not borne by a permanent establishment or fixed base maintained by the Polish employer in Denmark.

Having analysed the Commentary on the OECD Model Tax Convention, the authority concluded that the actual employer was the Danish customer and, in the future, could potentially be the Danish operating company. Consequently, the condition laid down in Article 14(2)(b) of the DTT would not be met, as the actual employer was resident in Denmark. As a result, the employees’ remuneration for work performed in Denmark would be taxable under the general provisions of the Polish-Danish DTT, meaning that it would be subject to taxation in both Denmark and Poland.

The concept of an economic employer

In light of the tax authority’s position, the key point is that, when determining who qualifies as the “employer” for DTT purposes, the tax authorities do not limit their analysis to the formal employment contract. From an international tax perspective, what matters is who actually directs the employee’s work and bears the risks associated with its outcome, rather than who signed the employment contract.

According to the Commentary on the OECD Model Tax Convention, the starting point is to determine whether the work performed by the posted employee forms an integral part of the business activities of the foreign enterprise. If it does, the foreign entity may be regarded as the economic employer, even if it has no formal employment relationship with the employee.

In practice, the tax authorities take into account a range of circumstances, including who gives instructions to the employee and controls how the work is performed, who provides the tools and materials required to carry out the tasks, and who is responsible to the end customers for the results of the work. The settlement method used between the companies is also relevant. If the Polish company merely recharges the employee remuneration costs to the customer without adding a profit margin, this may suggest that the arrangement constitutes the provision of personnel rather than the supply of an independent service.

None of these factors is decisive on its own. The circumstances must be assessed as a whole. This is why apparently similar situations may lead to entirely different conclusions.

The authority’s reasoning

Having analysed the actual cooperation arrangements, the Director of the KIS concluded that the activities performed by the Polish employees in Denmark formed an integral part of the Danish shipyard’s business and constituted the hiring-out of labour. The following circumstances supported the classification of the shipyard as the economic employer:

• Place of work and control: the work was performed on the shipyard’s premises and under its supervision, while the Danish quality controllers were authorised to communicate directly with the employees.
• Tools and materials: all the necessary equipment and materials, including marine paints, were provided by the Danish customer.
• Responsibility towards customers: the shipyard was responsible to its customers for the quality of the work performed by the Polish employees.
• Financing of costs: the employees’ remuneration costs were included in the service fee and were therefore ultimately financed by the Danish entity.

The Director of the KIS also addressed the proposed model involving the company’s own Danish operating company. The tax authority concluded that changing the formal customer would not affect the assessment, as the economic substance of the transaction would remain the same.

PIT remitter obligations

Under the Polish PIT Act, an employer acting as a PIT remitter is required to calculate, withhold and remit PIT advances to the tax office, as well as to prepare PIT-11 information returns.

In the situation under review, the employees’ remuneration is taxable in both countries, namely Poland and Denmark. To prevent double taxation, the proportional tax credit method applies. Tax paid in Denmark may be credited against the tax due in Poland, although the credit may not exceed the proportion of the Polish tax attributable to the income earned in Denmark.

The scope of the PIT remitter’s obligations differs depending on where the work is performed. The company withholds PIT advances under the general rules from remuneration relating to work performed in Poland. However, pursuant to Article 32(9) of the Polish PIT Act, the remitter does not withhold PIT advances from the portion of remuneration relating to work performed in Denmark, provided that the conditions specified in Article 32(9) of the PIT Act are met, in particular where the income is or will be subject to taxation outside Poland.

Irrespective of the above, the company remains required to prepare a PIT-11 information return disclosing the income from work performed in Denmark. This income should not be reported as tax-exempt income, but rather as income subject to taxation with the application of the proportional tax credit method.

Summary

The ruling described above demonstrates that the concept of an economic employer may be crucial in determining tax obligations in cross-border arrangements. Assessing whether the economic employer criteria are met is a complex exercise and requires a case-by-case analysis of the specific circumstances.

If you are dealing with similar issues and require expert support, please contact us. We have extensive experience in advising on cross-border arrangements.