Withholding tax Poland: New guidance from the Ministry of Finance

On 28 September 2023, the Ministry of Finance published a new draft of the guidelines on withholding tax (WHT) in Poland. This draft focuses primarily on clarifying the beneficial owner requirements. The Ecovis advisers in Poland know the details.

WHT general remarks

In the case of payments of receivables subject to WHT, the Polish payer is obliged to exercise due diligence in verifying the possibility of applying a preferential tax rate or exemption from tax collection. Due diligence includes, inter alia, verification of the status of the recipient, i.e., whether the recipient of the receivable is its beneficial owner. Recently, Polish tax authorities have begun to take a restrictive approach, in particular with regard to payments made to related parties, in order to reduce what is known as treaty shopping.

The new withholding tax guidelines in Poland are complex. We will explain the correct implementation to you.

Łukasz Stobiecki, Tax Advisor, ECOVIS Poland Audit, Tax & Accounting, Warsaw, Poland

Beneficial owner test

The draft provides an example list of premises that may indicate that the recipient is not the beneficial owner of the payment, but only acts as an administrator of the income (i.e., an entity whose right to dispose of the income is limited by an obligation to transfer the receivable to another entity). These premises include the following:

• The intermediary entity realises a small margin on the payments transferred
• At the level of the intermediary entity, there is no actual taxation of the income from the receivables received
• The sole object of the intermediary is to receive receivables and to pass them on
• Receivables are transferred to another entity at short intervals
• Payments of receivables occur at regular intervals
• The entity does not reinvest funds received in connection with receivables
• The majority of the entity’s revenue is derived from cross-border financial payments made by related parties
• There are significant items on the company’s balance sheet with respect to foreign related parties
• There is a multi-layered non-transparent structure with other intermediary companies as subsequent shareholders
• The receivable is passed on to an entity that would not have benefited from the preferential tax treatment provided for in the DTT or EU Directives
• There is a time connection between the establishment of the entity and a change in the tax rules guaranteeing tax privileges in another country
• The entity is located in a jurisdiction with an extensive network of double tax treaties or preferential tax treatment of passive income received from foreign sources
• There is no or very limited WHT in the entity’s jurisdiction in respect of payments to non-residents
• The entity has its residence in a country ranking high on the list of foreign direct investments in the territory of Poland, mainly due to cross-border financial payments rather than trade or production activities, and at the same time there is no correlation between the size of the GDP of that country and the scale of investments carried out from its territory

These guidelines are intended to demonstrate how WHT rules should be interpreted and applied. As a result, they are likely to have an impact on the Polish tax authorities’ working practice.

Accordingly, when making payments to related parties for receivables subject to WHT, companies should first verify the beneficial owner status of the recipient in accordance with these guidelines.

For further information please contact:

Łukasz Stobiecki, Tax Advisor, ECOVIS Poland Audit, Tax & Accounting, Warsaw, Poland
Email: lukasz.stobiecki@ecovis.pl