Withholding Tax and „Pay and Refund” mechanism

What’s going to change?

As of 1 January 2022, Polish remitters may be obliged to collect 19% or 20% WHT under a new “Pay and Refund” procedure irrespective of the relevant wording of double tax treaties or implemented EU Directives. 

The “Pay and Refund” mechanism could apply to payments made to related parties for interest, royalties or dividends and would be applicable on the excess of approx. EUR 400k per taxpayer / per year. 

For certain payments (irrespective of their value), a business substance based definition of beneficial owner could apply and thus should be verified. 

A switch-over rule to treat certain payments as “in-scope” of the WHT pay and refund mechanism is also provided, and may, i.a. concern certain dividend-like income distributions or payments made for intangible services. 

Due diligence of the tax remitter will be necessary to maintain to benefit from any WHT tax relief, but for payments subject to the “Pay and Refund” procedure, WHT relief will only be possible provided that a specific tax ruling is obtained, or Board members sign a specific statement – under pain of fiscal penal sanctions. 

Summary of key changes in Pay and Refund Mechanizm

What does it mean?

Maintaining the currently applied approach to WHT relief, in particular in case of intra-group payments may require analysis of several key issues including: 

• Does a company have a due diligence processes in place?  
• Does a company know how to determine an “economic / business substance”-based beneficial owner status of payment recipient, which can be decisive to apply WHT relief?   
• Does management board fell safe to sing a specific statement to secure the WHT relief or should the strategy be rather to apply for the specific tax ruling? 
• Does a company know how to determine payments which may be subject to switch-over rule for WHT Pay and Refund purposes?