Withholding tax on hosting services

The catalogue of intangible services subject to withholding tax is an open catalogue, which results in numerous interpretative discrepancies for tax authorities. Hosting services are one of the arguable issues.

For the purposes of withholding tax, hosting services are considered in the category of data processing services and use of industrial equipment. In accordance with the prevailing line of jurisprudence, hosting services involving exclusively the provision of disk space (servers) and data storage, with no data processing element, are not subject to withholding tax.

However, qualifying hosting services in the context of treating the server as an industrial device turns out to be very problematic. The tax authorities have taken the view that an industrial device should be understood as broadly as possible, not only in the context of material production, which in practice means that a server can be treated as an industrial device. Adopting such a broad interpretation leads to imposing withholding tax on hosting services.

Recently, there have been court judgments negating the possibility of treating servers as industrial equipment (e.g. judgment of the Supreme Administrative Court of 10 April 2019, II FSK 1120/17, judgment of 6 November 2019, III SA/Wa 958/19). According to these rulings, a server does not constitute an industrial device in the context of a service involving the provision of disk space (server) to store the data. The presented approach means that hosting services in the described scope are not subject to withholding tax.

However, it is worth noting that each of such services should be analysed separately for the withholding tax - a comprehensive assessment of the service purchased is necessary.