As of 1 January 2019, the new CIT Law entered into force in Poland. One of the key changes covered by the CIT reform, which will impact international tax groups, is a far-reaching reform of the withholding tax (WHT) regime. The change is unprecedented and brings with it significant uncertainty as to when it is possible not to withhold 19% (20%) tax on payments made by Polish entities abroad.

New WHT regime

Currently, payments for interest, royalties, dividends and certain services (e.g. advertising, management etc.) are subject in Poland to WHT exemptions or lower treaty-based rates.

Under the new measures, the basic rule assumes automatic collection of 19% or 20% on such payments by the Polish tax remitter for any excess above PLN 2 m (per recipient per year), transferred to the tax office, while foreign recipients of the payment will be allowed to request a WHT refund. The WHT collection will be automatic, and irrespective of the existence of a double tax treaty or EU Directives.

There are two possible ways for the Polish remitter to apply a WHT exemption or lower tax rate for such payments; however, these involve extensive documentation and require significant analysis before implementation.

Application of the new regime for payments exceeding PLN 2 m per year per recipient is currently suspended until 30 June 2019 (for certain specific payments suspension is indefinite). However new stricter criteria for determining the beneficial owner and tax remitter’s due diligence are applicable as of 1 January 2019.

TAX ALERT: Introduction of the new WHT regime in Poland - six key questions to note

Limitation of the application of the new withholding tax regulations | Decree of the Ministry of Finance

Take a closer look on the WHT changes

The new rules cover certain payments which may be subject to WHT in Poland, namely interest, royalties (e.g. for trademarks, know-how, fees for using certain equipment / machinery), dividends and payments for certain services, such as advisory, entertainment, advertising or management.

Qualified payments are subject to two regimes depending on the value of the payment:

For qualified payments less than PLN 2 m (approx. EUR 0.5 m) per year per recipient:

  • The regime for application of the treaty-based rate / exemption remains similar to the current one.
  • However Polish tax remitters will have to address new pre-conditions to determine if the application of a lower WHT rate / exemption is possible, such as (i) undertaking this determination with “due diligence” (no definition provided), and (ii) analysis of the beneficial owner status under a stricter criteria imposing, i.a., analysis of the genuine business activity of the recipient.

For payments exceeding PLN 2 m per year per recipient

  • A “pay and refund” mechanism will be introduced instead of current relief at source.
  • The Polish tax remitter will be obliged to withhold 19% or 20% of the payment irrespective of the treaty provisions or EU Directive based exemptions unless:
    • The Board member of the Polish tax remitter provides a statement that the recipient of the payment fulfils the condition for the lower WHT rate / exemption to apply;
    • The foreign recipient (in certain cases – Polish tax remitter) applies for an opinion (ruling) from the tax office.

If the tax remitter wishes to apply either EU Directive based exemptions, or the given double tax treaty, he needs to provide a statement in which he will certify that:

  • He possesses the documentation required by tax law for the lower WHT rate / exemption to apply.
  • After having verified if the conditions for the lower WHT rate / WHT exemption being applied are fulfilled, he / she is not aware of any circumstances which could influence this benefit, such as in particular non-beneficial owner status, or lack of genuine business activity of the recipient of the payment.

The statement is associated with personal sanctions for Board members stipulated under the Polish Fiscal Penal Code, and will be valid for approximately two to three months.

  • Through an opinion (a ruling), issued by the tax office upon request, the taxpayer (in certain cases – Polish tax remitter) can secure a WHT exemption for payments which are subject to the Parent Subsidiary Directive and Interest – Royalty Directive, i.e. dividends, interest, royalties.
  • The applicant will need to demonstrate fulfilment of conditions for a WHT exemption (i.a., beneficial owner status).
  • The tax authorities can refuse to issue the opinion if they suspect that the exemption could be questioned under anti-avoidance rules, or that the recipient does not conduct genuine business activity, or is not a beneficial owner of the payments.
  • The tax authorities will have up to six months to issue the opinion
  • The tax authorities will have up to six months to refund WHT upon request of the tax payer and in certain cases – Polish tax remitter.
  • Documentation needed for a refund is very extensive and will cover, i.a.: (i) certificate of tax residence; (ii) wire transfer confirmation regarding the payments subject to WHT or other documents indicating the method of settlement; (iii) related agreements; (iv) taxpayer’s statement regarding fulfilment of the conditions for the exemption; (v)  statement that the taxpayer is the beneficial owner; (vi)  statement that the taxpayer carries out genuine business activity (vii) the applicant’s justification on fulfilment of the conditions which are subject to the statements under (v) and (vi) above.
  • False statements leading to undue WHT refund can trigger severe fiscal penal sanctions in Poland for taxpayers.

The application of automatic collection of WHT for payments exceeding PLN 2 m per year per recipient is currently suspended until 30 June 2019 but for certain specific payments suspension is indefinite. However new stricter criteria for determination of the beneficial owner and tax remitter’s due diligence are applicable as of 1 January 2019. For more details please click here

How can Crido help?

  •  We combine our in-depth knowledge in the fields of domestic and international taxation, as well as litigation – in the past two years alone we have helped our foreign clients recover approx. EUR 90 m of WHT and we have been 100% successful in this process.
  • We have a team of over 15 partners and managers supporting the proper WHT settlement
  • We can navigate you through applying for a tax authorities’ ruling, taking into account any potential risks connected with this procedure.
  • We will help you to collect all the documents required for application for the tax opinion and secure proper e-filing
  •  We can support and secure decision-making process, and explain in a business and practical manner the legal, financial and cash flow impact of those changes on business, including their influence on personal liability.
  • We will prepare and implement relevant WHT procedures supporting the due diligence process and decisions made
  •  We will provide an in-depth analysis how your tax position may be affected by the new Polish tax regulations and formulate a practical recommendations to secure it.

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