On 28 June 2019 the Ministry of Finance published a decree postponing the implementation of obligatory withholding tax (“WHT”) remittance until 1 January 2020.
As of 1 July 2019, a new “pay-and-refund regime” for withholding tax with respect to larger payments was supposed to take effect. These new regulations imposed additional tax obligations on taxpayers who make larger payments of dividends, interest, royalties or fees for certain intangible services to foreign recipients. Larger payments are those which, in aggregate, exceed threshold PLN 2 million (approx. EUR 460 000) to the same recipient in the fiscal year.
The Ministry of Finance has also published draft explanations regarding the new rules for collection of withholding tax (“Explanations”). These provide further guidelines regarding the due diligence that taxpayers are required to undertake to establish the status of the recipient under the new beneficial owner definition.
The Explanations emphasize that the new beneficial owner definition was introduced to stop the use of structures which involve the participation of conduit companies and result in the avoidance of withholding tax obligations. Taxpayers are required to check that the recipient of the payment is in fact the beneficial owner and to assess, with appropriate due diligence, the nature and scale of the foreign recipient’s activities to be sure that the tax treaty provisions or EU Directives apply. The Ministry of Finance expects taxpayers to verify this status with respect to all payments potentially subject to WHT and not only towards interest and royalties, even though technically under the CIT law the beneficial owner status is required only with respect to WHT exemption on interest and royalties.
According to the Explanations due diligence includes:
- verification of available documents, including publicly available information concerning the recipient of the payments, such as press releases and media publications;
- checking the tax residence of the recipient;
- verifying that the recipient is the beneficial owner rather than a conduit entity, and the actual business activity performed in the country of its seat.
Additionally, higher standards of due diligence are expected between related entities which should include obtaining group documents setting out the financial flows and the role of each entity in the group structure.
Consequently, the new rules oblige WHT remitters not only to know the law, but also to determine the circumstances of the recipient of payments subject to WHT. The Explanations do not consider the frequency of verifying the status of the payment recipient, which means that taxpayers should probably verify the status each time they make a payment to foreign recipient subject to WHT.
We expect a final binding version of the Explanations to be published shortly with wording similar to the current draft.
Please note that new WHT regulations regarding payments below PLN 2 million have been in effect as of 1 January 2019 including the new definition of beneficial owner. For this reason, it is advisable to take care when applying WHT exemptions or a reduced WHT rate.
If you have questions, please contact one of ASB Tax specialists:
Head of Tax
Senior Tax Consultant - Tax Adviser
Photo: Kelly Sikkema