How to recover a withheld sum? – A few words about tax refund
The introduction of new regulations whereby CIT in Poland will be automatically withheld at the rate of 19 % / 20 % will directly result in the willingness to recover a tax collected above the sum arising from the applicable regulations. Below we attempt to answer the question how to do so. The amendment to the CIT Act has introduced a new procedure, as part of which taxpayers (and in certain situations, also the tax remitters) will be able to apply to recover tax withheld in accordance with the new regulations. It seems to follow from the content of the Act amending the CIT Act that this going to be a sort of specific proceeding concerning recovering overpayment of the tax that will only limit its scope to WHT collected in accordance with Article 26 Sec. 2e.
In order to recover tax withheld above the sum arising from the Double Tax Treaties / applicable tax exemption, a taxpayer will have to submit (via the electronic system), to the Head of the Tax Office, an application accompanied by documentation confirming its justifiability. In principle, the application should be addressed to a Head of the Tax Office competent with respect to the registered seat of the taxpayer. If, however, the applicant is, for example, a non-resident, the application should be addressed to an authority competent with respect to taxation of foreign persons. The Act also contains a catalogue of examples of documents that should accompany the application. It is important to note that documentation that the taxpayer will have to enclose with the application includes not only the “basic” documents confirming tax residence, the method of settlement of the amounts receivable (confirmation of the wire transfer / documentation providing the basis for a cash-free settlement, e.g. set-off) or agreement – i.e. documentation the authorities also currently usually require in proceedings concerning refund of overpaid WHT. The list is wider and also includes, inter alia, the taxpayer’s statement of knowledge (with its reasons) that the taxpayer is the beneficial owner of the receivable and that it actually conducts the business activity in the country of residence.
Also, the tax remitter will have the right to apply for refund of tax in the event where the tax was paid out of the “tax remitter’s own pocket”. However, in such a situation, the applicant will also have to prove that in accordance with the arrangements (between taxpayer and tax remitter), it was the tax remitter who bore the economic burden of the tax (under e.g gross-up clause).
It follows from the content of the regulation that the list of documents that the applicant will have to submit to the authority is only exemplary, so in the course of proceedings concerning WHT refund the tax authority will be able to request the applicant to submit any other documentation or submit any other proof, provided that, in the opinion of the authority, it will be conducive to verifying the correctness of the taxpayer’s / tax remitter’s request. In order to check whether the request to refund WHT is justifiable, the tax authority will also be entitled, inter alia, to use the so-called procedure of exchange of information with the international fiscal administration (in particular, they may request information with a view to verify the representation concerning the beneficial owner and actual business activity).
Additionally, the authority may carry out a tax inspection in the territory of the taxpayer’s country of residence. As long as the first of the above-mentioned methods is currently also often applied by the Polish fiscal authorities, conducting a tax inspection outside of Poland will actually be a novelty in the practice of the Polish fiscal authorities. The question also remains open whether and how often they will take advantage of their right to do so. Generally, the authorities will be granted a deadline of six months from receipt of the application to examine the application and refund the tax (even though, in principle, the applications are to be examined without undue delay). In practice, the deadline may, however, be much longer. For example, if the Polish authority takes advantage of the assistance of an international fiscal administration, the refunding of tax may take from a few to several dozen months. If from the Polish authority’s opinion it follows that it is highly likely that the tax refund was unjustifiable and the options of verifying the reasonability of refund have been exhausted on the basis of Polish regulations, the tax authority may extend the deadline for refund until verification of the request as part of the respective inspection/proceedings is completed.
Generally, tax refund proceedings may be ended with:
- A decision establishing the amount of refund followed by transfer of the refunded tax; or
- Transfer of tax performed without a decision - if the application for refund raises no doubts of the fiscal authority.
The refund should be made to the bank account specified by the applicant. In the event that the transfer is made to a foreign bank, the authority will reduce the amount of the refund by the cost of its performance (in particular by the commission fee charged for such transfers). Generally, if the authority does not refund tax within the six-month deadline, interest should be added to the refund. The interest shall be in an amount equal to the prolongation charge (one half of the amount of the base rate of interest on tax arrears).
Bearing the above in mind, it should be expected that a request for refund of tax (based on the ‘new regulations’) will very often trigger proceedings as part of which the authority will strive to examine many issues related to the activity of the taxpayer on the basis of the collected documentation. The need to participate in such proceedings (i.e. submitting a detailed application, and subsequently, on-going communication with the Polish authorities) may turn out to be onerous, first of all for foreign taxpayers. Difficulties may arise in the situation where a Polish tax remitter will request refund of a tax that they have paid, in particular in the event that the authority will require submission of detailed information / documents concerning the activity of a taxpayer with whom a tax remitter has no regular contact.
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