Cash pooling is a financial management method in which the cash shortfalls of one company are covered by the surpluses generated by another company in the group.
A recently issued tax ruling concerns the cash pooling system in an international capital group. The sole shareholder of a Polish company is the parent company based in Germany. The German company acts as the Pool Leader, which manages the cash pooling system in the group, which includes companies based in different countries.
As part of the cash pooling system, funds in participants' accounts are paid into the main account of the German parent company. Parent company is the sole owner of the balance on main account. Any payments to the participants' account increase the balance on the main account, while withdrawals reduce it. All funds in the main account are the property of the parent company, which bears the economic risk associated with the operation of the system. The German company's funds come from:
- own funds,
- external financing, and
- settlements made by the parent company with other participants in the system (as part of managing financial surpluses generated by these entities).
The financing model operating within the cash pooling system is similar to individual financing (a credit line) that specifies the debt limit.
In the tax ruling, the tax authority confirmed that the Pool Leader is the beneficial owner of the interest payment. Thus, it is sufficient for the German company to meet the conditions for exemption from withholding tax. Therefore, all payments within the cash pooling system will be subject to exemption, not only the payments of interest on Pool Leader's own funds.
Tax ruling, 0111-KDIB1-2.4010.647.2024.2.AW, 8 January 2025
