Withholding tax and the concept of industrial equipment – unfavorable position of the SAC

Both the provisions of the Corporate Income Tax (CIT) Act and the provisions of various double taxation treaties provide for the obligation to withhold tax on payments made to non-residents for the use of so-called “industrial equipment.”

In principle, non-residents earning income in Poland from the use or right to use industrial equipment, including means of transport, commercial equipment, or scientific equipment, are required to pay a 20% withholding tax.

Similarly, most double taxation treaties, in the article concerning royalties, state that this definition includes fees for the use (or right to use) industrial, commercial, or scientific equipment.

However, neither the CIT Act nor the double taxation treaties provide a legal definition of “industrial equipment.” Thus, the issue was open for discussion.

What has been the previous understanding of the term “industrial equipment”?

Until now, the SAC (Supreme Administrative Court) has generally presented a favorable interpretation of the term “industrial equipment.” The SAC emphasized that the key factor in classifying a given device was its functional aspect, meaning the need to determine the purpose and activities for which the device is used. The decision to classify a device as “industrial equipment” would therefore depend on its use and application in industrial production (for example, SAC judgment of April 19, 2023, file number: II FSK 2566/20; SAC judgment of March 8, 2023, file number: II FSK 2089/20). In taxpayer-friendly judgments, the SAC indicated, among other things, that computer servers should not be classified as industrial equipment due to their broad range of applications and the possibility of using them for “non-industrial” purposes. Thus, the SAC emphasized that a computer server could be considered industrial equipment only if it fulfilled industrial functions, i.e., if it was connected to any industrial device involved in the production process.

Expanding the concept of “industrial equipment”

Recently, however, there has been a noticeable shift in the SAC’s approach to this issue, with courts, including the SAC, applying a broader interpretation of the term “industrial equipment.”

For example, in the judgment of February 27, 2024, file number: II FSK 718/21, the SAC emphasized that the term “industrial equipment” should be understood as broadly as possible, meaning all devices that, rationally speaking, can be used in industry. The SAC stated that the classification of a device as “industrial equipment” under Article 21(1)(1) of the CIT Act depends on the “objective constructional and functional features of the device,” rather than whether these devices are directly involved in mass production. The SAC also emphasized that both the linguistic and purposive interpretations indicate that “industrial equipment” refers to devices used in professional trade and connected with the activities of a given entity. According to the SAC, industrial equipment does not need to be used directly in the production process (a similar standpoint was presented by the SAC in its judgment of May 16, 2024, file number: II FSK 1078/21, and in the judgment of February 22, 2024, file number: II FSK 714/21).

This broad interpretation of the term “industrial equipment” has led the SAC to classify, among other things, devices used for transporting, installing, starting, and servicing wind turbines, central servers, or even aluminum panels used to create temporary access roads for vehicles used in the energy industry.

The March SAC judgment

Unfortunately, the trend towards a broader interpretation continued with the judgment of March 4, 2025 (II FSK 742/22), where the SAC, citing rationality considerations, expanded the list of devices qualifying as “industrial equipment” to include construction containers.

The case concerned a Polish development company that asked the Director of the National Fiscal Information (KIS) whether construction containers rented from an Austrian contractor fell within the definition of “industrial equipment” under Article 21(1)(1) of the CIT Act and, consequently, whether the Polish company, acting as a tax remitter, would be required to withhold tax on payments for renting the containers.

In its oral justification, the SAC stated that construction containers fit the definition of industrial equipment. According to the SAC, rationality considerations supported this conclusion, as these containers serve industrial purposes. The fact that the containers in this case were rented for social and office purposes for the employees did not, in the SAC’s view, negate their connection to the construction process.

Thus, the SAC ruled that despite the construction containers not directly impacting the construction process but merely providing social and office infrastructure for the company’s employees, they still qualified as “industrial equipment.”

Summary

It seems that in its March 2025 ruling, the SAC unfortunately confirmed a broad and unfavorable interpretation of the term “industrial equipment,” which may pose risks for taxpayers regarding withholding tax and increase uncertainty about which devices actually fall under the definition of “industrial equipment” and, consequently, are subject to this tax.

The criteria proposed by the SAC for classifying a given device as “industrial equipment” may be unclear for taxpayers and deviate from the common, intuitive understanding of what constitutes industrial equipment.

Therefore, in light of this change in approach, there may be a need to verify existing policies regarding cross-border payments for renting or the right to use various types of equipment.