The tax authorities issued a decision according to which a Polish entity should have withheld WHT upon payment of dividend in 2016 to its holding company, being a limited liability company with seat in Cyprus. Within the decision the tax authorities questioned the entitlement of the Polish tax remitter to apply WHT exemption under regulations implementing EU Parent Subsidiary Directive to the Polish CIT Act, due to the fact that the recipient was allegedly not beneficial owner of the dividend.
Important court ruling for payments subject to WHT
- The tax authorities issued a decision according to which a Polish entity should have withheld WHT upon payment of dividend in 2016 to its holding company, being a limited liability company with seat in Cyprus.
- Within the decision the tax authorities questioned the entitlement of the Polish tax remitter to apply WHT exemption under regulations implementing EU Parent Subsidiary Directive to the Polish CIT Act, due to the fact that the recipient was allegedly not beneficial owner of the dividend.
- The Polish entity submitted appeal against the decision to the Regional Administrative Court. In the ruling issued the court took the side of the Polish entity underlining that:
- The Polish entity, as a tax remitter, was not obliged to verify whether conditions needed for the purpose of application of WHT exemption are met.
- The tax authorities did not indicate which actions were omitted by the Polish entity that could substantiate its responsibility for not withholding the tax, especially bearing in mind that the Polish entity presented documents and statement which confirmed the right to apply WHT exemption upon payment of dividend.
- From the documents gathered it does not seem that the Polish entity was aware of the fact that the holding company could be potentially treated as conduit company which would disallow entitlement to apply WHT exemption.
- Article 22 c under which WHT exemption could be challenged in case a given payment was the result of agreement or other legal activity that did not have business rationale was not addressed to tax remitters but to taxpayers and tax authorities. As such, it may not be used as an argument for assigning responsibility to a tax remitter for not withholding the tax.
- The court agreed with the Polish entity that the fact that the main business goal of a given holding company is management of assets of its subsidiaries or that income of this holding company stems from such management does not predestinate that the ownership structure is artificial and has no business rationale. Moreover, the fact that the holding company receiving the payment is a subsidiary of other company in the structure itself does not automatically mean that such holding company may not be considered entity entitled to dividend if it carries out actual and independent business activity.
- Obligation of conducting throughout WHT due diligence was introduced to the CIT Act as of 2019 and may not be applied to payments potentially subject to WHT which were made prior to 2019.
- Although the judgement relates to payment of dividend made in 2016, we believe that arguments of the administrative courts describing specific characteristics of holding companies may be used also with respect to payments made in the following years. Moreover, they may be used in applications for WHT opinion which allow for a given WHT preference without obligation to apply restrictive WHT regime which came into force in Poland as of 2022.
Should you struggle with WHT obligations in Poland and need assistance of experienced tax adviser, please contact us.
