Withholding tax (WHT) itself and the related concept of the so-called look-through approach (LTA - i.e. the application of WHT preferences to an entity other than the direct recipient of the payment) continue to be relevant in the Polish tax environment. Particular problems in the application of the LTA arise with cross-border dividends.

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New Administrative Court’s verdict

On 21 January 2025 the Regional Administrative Court (WSA) in Poznan issued a verdict regarding this topic[1] – this is the first LTA judgment issued in 2025 which further increases its importance.

The case is particularly interesting since the Polish company, wishing to make use of the dividend WHT exemption, firstly applied for an advance WHT clearance opinion but got a refusal. The authority stated that the Belgian parent company does not conduct genuine business activity in its country of residence, but only acts as a passive holding company that forwards the received payments to the US company, being the ultimate parent company of the whole group.

Following the refusal, the Polish company applied for a tax ruling stating that if the LTA is applied, it is entitled to apply the reduced WHT rate stemming from the Polish-US double tax treaty (DTT), since the US operating company (which is the “great-grandparent company” of the Polish company with a total indirect shareholding of 100%) is the beneficial owner of the payments transferred to it by the Belgian parent company.

The authority disagreed with the company's position since the Belgian parent company earned income in Poland due to the dividend received, thus, only the Belgian company can be considered as the taxpayer in relation to the dividend, and the examination of the WHT taxation rules is possible only with respect to the Belgian company, taking into account the Polish-Belgian DTT. The authority highlighted that the  Belgian parent company is deemed a taxpayer because it has received the dividend and it does not matter whether it has the status of beneficial owner with respect to the dividend received. In view of the above, the applicability of the Polish-US DTT in the situation at hand was considered unjustified by the tax authorities.

The authorities also referred to the Draft Tax Explanatory Notes on WHT[2] issued in September 2023, highlighting that the position of the Ministry of Finance with regard to the LTA concept has changed in comparison with the position taken in the Draft Tax Explanatory Notes as of June 2019[3], which had allowed the final recipients of receivables (e.g. dividends) having beneficial owner status to benefit from the withholding tax exemption omitting the intermediary entity.

The court’s stance

The Polish company appealed the negative decision to the WSA, but the administrative court upheld the negative tax ruling and dismissed the complaint (at the time of the publication of this article, the judgement is not final and the written justification has not been published).

The oral justification seems disappointing because the court merely stated that since the Belgian company received dividend income, the Polish-Belgian DTT could possibly be applied. This statement is obvious and does not address the LTA issue itself.

Further, the court stated that the tax ruling was correct on the grounds that the Polish company had only asked about the treatment of the dividend in relation to the US company (i.e. the indirect shareholder of the Polish company) and not the Belgian company and therefore the authority did not have to comment on the Polish-Belgian DTT. However, it seems logical that the company asked this very question about the US company (bearing in mind the refusal WHT clearance opinion regarding the Belgian entity) aiming at the essence of the LTA, whereas it is hard to find arguments as to why the court omitted this key aspect in its oral justification.

Summary

Following our previous post on LTA (in Polish only), it is visible that the Polish tax authorities apply the above-described approach in tax rulings issued since the end of May 2024. The discussed judgment not only shows the continuation of this trend but also that the court, which is a higher authority, confirms this unfavorable case law line (at least in a way that omits the confirmation of the correctness of the application of LTA rather than explicitly contradicting this concept).

Currently, despite the fact that the topic of the look-through approach raises doubts on the part of Polish tax remitters and the practice of the tax authorities in this respect is mostly negative (in addition, not uniform), as of the publication date of this post, the Minister of Finance still has not issued any binding explanatory notes on this topic (only two non-binding drafts were issued in 2019 and 2023). 2025 may bring – hopefully positive - changes in this respect…

CRIDO’s experts are constantly monitoring the practice of Polish tax authorities and administrative courts, i.a. regarding the look-through approach, and we will be happy to support you in this challenging issue.

[1] Judgment of WSA in Poznan as of January 21, 2025, no. I SA/Po 650/24 (not final)

[2] Draft Tax Explanatory Notes on withholding tax collection as of September 25, 2023

[3] Draft Tax Explanatory Notes on rules of withholding  tax collection as of June 19, 2019