WHT: Polish tax authorities confirm the applicability of the 'look through' approach in a non-standard situation
‘Look through’ is a special approach, not directly regulated in Polish tax provisions and its applicability still raises many doubts. Still, practice shows that slowly the Polish tax authorities are convinced that, in order to apply Withholding tax (WHT) preferences, due care is to be performed by the remitter with respect to the beneficial owner of the payment, and not necessarily regarding the direct payment recipient. Such an approach was recently confirmed by a tax ruling that we managed to obtain for our client.
Shared services center as payment intermediary for services rendered between Group companies
The ruling concerns settlements of a Polish tax resident company whose sole shareholder is a foreign company. The task of the shareholder is, inter alia, to allocate the costs of services provided within the Group to all Group entities, including to the ruling’s applicant (being a so-called shared services center - SSC).
The Polish company, in the course of its business activities, purchases a number of intangible services from various Group entities, which include consulting, marketing, management, general support services, legal and tax services, and therefore, due to their nature, treats the related payments as subject to Polish WHT.
Such services are indirectly settled with the respective service provider (i.e. the Group entity that actually provided a given service), i.e. they are firstly invoiced by the service provider to the SSC and then re-invoiced by the SSC to each Group company.
Service providers included (i) entities from countries with which Poland has a double tax treaty (DTT) and (ii) foreign units of the SSC (e.g. branch, office), which do not constitute separate taxpayers or permanent establishments.
Due care to be performed omitting the SSC?
In the motion, it was to be confirmed that the 'look through' approach regarding payments made to the SSC for services provided by Group companies is to be applied. This means that due care should be performed by the Polish tax remitter by verifying the actual service providers, who should be treated as taxpayers and therefore potential beneficial owners of the payments and that such examination is, therefore, to be carried out omitting SSC.
Tax authorities' position
Tax authorities agreed entirely with our position presented in the motion. It was confirmed that the Polish company is allowed to qualify the remuneration paid for services actually provided by Group companies using the ‘look through’ approach. In the tax authorities’ opinion, a given DTT concluded with the countries in which the particular actual service providers have their seats should be applied, omitting the re-invoicing entity (SSC), assuming at the same time that these entities are the beneficial owners of the paid receivables (and do not conduct business activity in Poland through a permanent establishment).
The tax authorities' response shows that, provided there is a DTT with the relevant country in which the company has its registered seat, the Polish entity will not be obliged to collect WHT on payments for services actually rendered by Group companies that are the beneficial owners of the payments, and these payments should be taxed as business profits in the countries of residence of each receiving Group company.
Particularly interesting: in case of services performed by the foreign units of the SSC, the taxpayer and therefore potential beneficial owner of the payments of the receivables is the SSC itself since these units are an integral part of the SSC, not being separate taxpayers or permanent establishments. This means that these payments should be treated as business profits, taxable in the SSC's country of residence. This conclusion is crucial as, if the foreign units are located in countries with which Poland does not have concluded DTT, WHT in Poland would be due in full (i.e. 20%).
Positive line of interpretation
The received ruling shows that a positive line of interpretation presented by the Polish tax authorities regarding the possibility of applying the ‘look through’ approach to payments made to their actual beneficiaries is slowly emerging (still inconsistent line of interpretation).
Our client’s ruling is undoubtedly part of a recent positive trend of recently issued tax rulings (the vast majority of which, however, concerned passive income payments). Still, as of the date of publication of this article, it seems yet too early to claim that the Polish authorities have fully approved this approach. Consequently, its application without prior securitization in the form of a tax ruling may expose the Polish tax remitter to a significant tax risk. Therefore, we recommend further monitoring the above issue, and in case of any doubts, CRIDO’s experts will be at your disposal.
 Tax ruling of the Director of the National Fiscal Information dated 7 April 2023, no. 0111-KDIB1-1.4010.57.2023.2.SG