The Polish Ministry of Finance has released the final version of its official explanations (“Explanations”) on the application of the so-called beneficial owner clause for the purposes of withholding tax (“WHT”). This document is of high importance to entities making payments subject to Polish WHT. It provides more clarity on how remitters should interpret and apply the beneficial owner requirement when determining whether preferential WHT treatment can be applied.
Key principles of the Explanations on the application of the beneficial owner clause under the Polish WHT rules
Definition of beneficial owner
Under Polish tax law (Article 4a point 29 of the Corporate Income Tax Act and Article 5a point 33d of the Personal Income Tax Act), a recipient of the payment may be regarded as the beneficial owner only if the following conditions are met simultaneously:
- The recipient receives the payment for its own benefit—this includes having the sole discretion to decide on its use and bearing the economic risk of its loss, either in whole or in part;
- The recipient is not an intermediary, agent, trustee, or another entity obliged to transfer all or part of the payment to another party;
- The recipient conducts genuine business activity in the country of its registered office, if the payment is related to such activity.While assessing the genuine business activity, the type and scale of the activity in connection with the received income must be taken into account.
The Explanationss emphasize that the first two criteria must be assessed jointly, as they are functionally linked and focus on the recipient’s economic control over the income, rather than formal ownership alone. The obligation to transfer the payment may arise from either contractual arrangements or actual circumstances. Importantly, subsequent payments made under established domestic group arrangements (e.g., German profit transfer agreements) do not automatically disqualify an entity as a beneficial owner. What matters is whether the entity bears the economic risk associated with the payment (e.g., credit or interest rate risk).
The requirement to carry out genuine business activity complements the first two criteria, by mandating that the entity possesses adequate resources (human, informational, infrastructural) to exercise actual economic control. The level of required substance depends on the nature of the business and the type of income involved. Holding companies may be subject to less stringent requirements than operating entities. Assessment factors include: ownership of assets, office presence, employment of personnel, incurrence of operational expenses, managerial staff with relevant experience, and sufficient equity.
Of particular note is the concept of a “shared personal-material substratum.” In specific circumstances, where operational resources are provided by another group entity (provided that the entity is tax resident in a jurisdiction covered by the relevant source of preferential treatment—such as the EU for the Parent-Subsidiary or Interest-Royalties Directives, or the same country as the tested company for double tax treaties), this does not automatically disqualify the tested entity as the beneficial owner. However, this is an optional approach available to the taxpayer/remitter, and the tax authority is not obligated to accept it.
Which payments require assessment of beneficial owner status?
According to the Explanations, the beneficial owner condition must be examined only in the case of so-called passive payments—namely, interest, royalties, dividends, and other income from participation in the profits of legal entities. This requirement applies both under domestic CIT exemptions (implementing the EU Parent-Subsidiary and Interest-Royalties Directives) and under the provisions of double tax treaties, even if the treaty does not explicitly refer to the beneficial owner condition.
There is no obligation to verify the beneficial owner condition for payments related to intangible services (e.g., advertising, consulting), which are considered business profits under the terms of most double tax treaties.
Payments made to related parties require enhanced scrutiny. According to the Explanations, a beneficial owner declaration and a certificate of tax residence are not sufficient on their own. The remitter is required to review all available documents evidencing fulfillment of the beneficial owner criteria (e.g., agreements indicating presence of a material and personal substratum, financial statements confirming economic control).
In the case of unrelated parties, the scope of verification may be more limited. The remitter may rely on the taxpayer’s certificate of tax residence and their statement confirming beneficial owner status. Nevertheless, the remitter must exercise due diligence in verifying the formal correctness of such documentation (e.g., validity period, form).
The standard of due diligence is assessed on a case-by-case basis, depending on the nature and scale of the remitter’s business operations and their relationship with the taxpayer.
The Explanations also address additional technical matters, including the application of the Look-Through Approach by Polish payers.
Significance of the Explanations for beneficial owner assessments under Polish WHT rules
Taxpayers who apply the official tax Explanations benefit from special legal protection, similar to that granted under individual tax rulings. Specifically, if a taxpayer follows theExplanations before any amendment thereto, or if the Explanations are disregarded in the resolution of their tax case, such taxpayer may not be negatively affected. This protection fully applies to events occurring after the issuance of the Explanations.
Should you require support in analyzing the implications of the Explanations for your Polish WHT obligations, including documentation standards or risk assessment under the beneficial owner clause, our team of tax advisors is available to assist.
