RSM Poland


Dark fiber lease and withholding tax, in other words: countless doubts

Tax Supervisor at RSM Poland

This year started with comprehensive changes of obligations faced by payers of withholding tax (WHT). At present, they not only need to obtain a certificate of residence of their contractor, but also verify – with due diligence – if there are any grounds for applying preferential taxation under a relevant double taxation treaty (DTT).

The difficulty involved in this verification, where you, among others, need to determine if the contractor is the “real owner” of receivables, is one thing. But what should a potential WHT payer do in the case when he does not know in the first place if he shall deduct such tax from the paid out receivables or not?

Quite a lot of problem areas with recognising payments as subject to WHT have been identified in recent years. For some of them, there is a light in the tunnel. An example of an opportunity to introduce a solution that is favourable for taxpayers may be the evolving practice of tax authorities to consider that WHT does not apply to end-user licenses. However, sometimes the legislator has to step in to solve disputes, see: the amendment under which the withholding tax shall not apply to airline tickets.

Unexplored areas of WHT

There are areas within the domain of WHT, however, that have not yet been investigated, and the earlier practice does not shed any light on this. From our experience we can say that it is particularly dark when it comes to dark fiber leases. Dark fiber is most often used under a Right-of-Use agreement (ROU) that does not cover the provision of the service of data transmission via optical fiber, but offers sharing one of its threads between given geographical locations. What are the reasons behind problems with collecting WHT on receivables paid under such agreements?

Not that much into finance and taxes but overwhelmed by documents you’re not sure how to read?

Poland is one of the few members of the OECD whose domestic legislation (CIT Act and PIT Act) as well as bilateral DTTs provide that royalties shall include not only payments for right-of-use and intangible assets, but also payments due for the use of tangible items (movable assets). Domestic regulations and provisions of DTTs concluded by Poland here employ an enigmatic term of receivables for the “use of industrial equipment”.

What this term actually means and how should it be interpreted in the case of payments for the right-of-use of optical fiber?

According to tax authorities and certain administrative courts, the term of “industrial equipment” does not imply that WHT applies only to entities actually involved in industrial business activity (i.e. manufacturing products on a mass scale using mechanical devices). At the same time, it is problematic whether the optical fiber can be considered ”equipment” at all. For this term should be defined according to its linguistic meaning as an “item of complex structure, either performing or facilitating certain work” or a “mechanism or a set of mechanisms, sometimes very complex in technical terms, used for specific activities, performing a certain function; a device”. 

Does optical fiber meet this definition? At first glance it may seem it does. It does perform certain tasks, being a medium for transferring information. On the other hand, if you take a look at an optical fiber thread (because it is usually a single thread and not the entire optical fiber that is the subject of ROU agreements), you may have serious doubts. Optical fiber thread in itself is passive and does not include any mechanical elements. To put it simply, it is merely a tube made of fiberglass, in which the light (used as a data carrier) propagates. Such a single thread does not have any mechanisms and one definitely cannot say that this item has a complex structure. Hence, it does not have typical elements of a “device” as listed in its dictionary definition.


It is not easy to clearly determine whether WHT shall apply to dark fiber lease or not, as it requires a detailed analysis of both a given ROU agreement concluded by the Polish entity and the provisions of a relevant DTT. This analysis proves difficult as there is no wide common practice of the Polish tax authorities in this respect, and the authorities have seemed to be overlooking the issue in question. For optical fiber lessees it is a concern, because tax authorities have been paying more attention precisely to WHT since early this year. And we have seen over the recent years that the tax office tends to focus on areas where they see a possibility to maximise tax liabilities.

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