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Limited partnerships mustn’t pay advance tax payments in relation to renumeration of their partners

Voivodeship Administrative Court in Gdańsk, I SA/Gd 291/23

Ruling: The 19% lump sum tax on renumeration in the form of advance profit payments may not be paid on a monthly basis, as the actual amount of tax remains unknown until the limited partnership calculates their annual income.

Explanation: Limited partnerships (spółka komandytowa and spółka komandytowo-akcyjna) are obliged to pay a 19% tax on payments to their partners as a form of advance payment of future profits. General partners may proportionally deduct from their tax the tax paid by the partnership on its own annual income. In effect, the partnerships due tax is unknown until the end of the year. This results in a dispute between taxpayers and the tax authorities whether the 19% tax should be paid on a monthly basis. The authorities’ stance is that tax should be paid every month when the partnership renumerates their partner, who may at the end of the year request a refund of possible overpayments.

The taxpayers continued to disagree with this view, claiming that it forces them to pay tax despite the key figures for its proper calculation aren’t known mid-year. This time an interpretation of the tax administration on this issue reached the Voivodeship Administrative Court in Gdańsk. The Court repealed the interpretation, noting that there were already a number of Voivodeship Administrative Courts’ rulings and one ruling of the Supreme Administrative Court (regarding spółki komandytowo-akcyjne) dealing with this matter. Income is calculated annually, so it is impossible to expect from the taxpayer to pay the tax monthly, without deductions to which they are entitled to.

The case still may reach the Supreme Administrative Court if the administration decides to appeal from this verdict.

Impact: The ruling shows, that there is a clear case law line as for payments to general partners. Normally it should result in a shift in the administration’s position. In this particular matter it must be noted, that the authorities’ position has been repeatedly contradictory to the previous courts’ rulings. Because of that it remains unclear whether this ruling will bring a lasting change in the interpretation of tax law.