The organiser, not the client, is liable for the flat-rate tax on prizes.
According to the latest ruling by the Supreme Administrative Court, the payer of the flat-rate income tax on prizes awarded in loyalty schemes, incentive schemes and sales promotions, such as promotional lotteries, competitions and bonus sales, in accordance with Article 41(4) of the Personal Income Tax Act there is an organiser, namely an agency, rather than the party commissioning the operation (the Client).
In its ruling of 25 November 2020, the Supreme Administrative Court in Warsaw that i360’s position was correct, whilst at the same time dismissing the cassation appeal lodged by the Director of the National Tax Information Service in two cases heard by the court of second instance.
Flat-rate taxpayer
In the first case, the matter concerned a 2017 judgement in favour of i360 handed down by the Provincial Administrative Court in Warsaw regarding the obligations incumbent on i360, as a payer of personal income tax, both in relation to loyalty schemes and promotions based on the Gambling Act. Given these facts, we sought clarification from the authority as to whether the entity obliged to collect income tax on prizes awarded, in accordance with Article 41(4) of the Personal Income Tax Act, is i360, as the organiser of such campaigns, or its client, who is the principal and who ultimately bears the economic burden of the costs of the prizes awarded. In the tax authority’s view, the client should act as the withholding agent. We held the exact opposite view, arguing that i360 was the withholding agent. This view was also shared by the court of first instance. Ultimately, the Supreme Administrative Court ruled in favour of i360.
In the second case, the dispute with the tax authority also centred on the issue of i360’s obligations as a tax withholder in respect of campaigns based on a public promise, as well as those based on the Gambling Act. We sought clarification as to whether the entity obliged to withhold income tax on prizes awarded, in accordance with section 41(4) of the PIT Act, is i360 or its client.
In our view, when i360 issues rewards under loyalty schemes to Participants who do not carry out non-agricultural business activities, and where no tax exemption applies, it acts as a tax withholder.
In its individual tax rulings, the tax authority had taken a different view. Ultimately, the dispute was settled in i360’s favour by the Supreme Administrative Court, which finally brings this matter to a close.
To summarise: the organiser of a given marketing campaign, rather than the client, is responsible for collecting and paying the flat-rate tax on the prizes awarded.
