The latest amendment to the Corporate Income Tax Act introduces a new mechanism of collecting withholding tax for payments in excess of PLN 2 million annually (per one taxpayer).
In case of dividends, the new provisions apply both to Polish and foreign payment recipients.
If the payments do not exceed PLN 2 million annually, the withholding agent will have to meet additional requirements to apply a reduced withholding tax rate. In addition, the regulations introduce new exemptions. For example, shareholders will not be obliged to collect WHT on interest/discount on corporate bonds (provided that specific conditions are met).
At the same time, we would like to draw attention to the Ordinance on the exclusion or limitation of the new mechanism of charging withholding tax untill 30.06.2020. The extended deadlines apply only to payments exceeding PLN 2 million and do not exclude the obligation to act with due diligence.
New withholding tax requirements:
Who is affected?
- Taxpayers, in particular holding companies, service providers, investment/pension funds comparable to Polish ones,
- Withholding agents, with respect to collecting and refunding withholding tax.
What does it mean?
- Personal liability of tax withholding agents (board members) due to influence on cash flows,
- Withholding agents will be responsible for ensuring that the documentation is complete and that the facts established in the course of the certification process are correct.
- Certification
- Refund
- Opinion
Certification
Under the mechanism, withholding agents are allowed not to collect withholding tax on payments smaller than PLN 2 million annually, provided that they submit the following documents:
- A representation stating that the withholding agent has documents confirming the legitimacy of applying a reduced withholding tax rate,
- Tax exemption (including a tax residence certificate).
The withholding agent has to undergo a certification process whose criteria have not been specified by the legislator yet.
The certification process will require in particular:
- exercising due diligence (including application of so-called due diligence measures by the withholding agent),
- collecting and verifying source documents,
- verifying the status of the actual owner and confirming that the business partner is engaged in actual business activity in the country of its registered office.
Refund
The taxpayer/withholding agent has the right to apply for a refund of the withholding tax. A new digital procedure will be developed in this respect – the details have not been revealed yet.
Opinion
A taxpayer or withholding agent who has incurred the economic cost of the withholding tax and, at the same time, meets the conditions specified in the CIT Act, may apply to the tax authority for an opinion on applying a withholding tax collection exemption (“Opinion”). The opinion is issued within 6 months from the date of receiving the application by the tax authority and applies for 36 consecutive months. The fee payable on an application for an opinion amounts to PLN 2,000.
The application may be rejected in certain specific cases (e.g. if tax avoidance provisions apply)
Possible problems?
- Personal liability, in particular fines and other penalties, including imprisonment, as provided for in the Penal Fiscal Code,
- A fine in the amount of 10-30% of the tax base if the tax office challenges the results of the certification process during a tax inspection
WHT Navigator
WHT Navigator is a unique digital tool developed by PwC that will help you ensure due diligence required in the new certification process. With the tool you will be able to effectively obtain information required for the certification process from business partners. It can be shared by the withholding agent and the taxpayer.
What does the WHT Navigator offer?
- Reviews of the business rationale for cross-border transactions,
- Fund certification,
- Tax disputes and tax proceedings,
- Analysis of actual business activity of CFCs,
- Analysis of the business substance of holding companies.
WHT Refund Solution
Withholding Tax (WHT) Refund Solution is a unique service developed by PwC, which includes a comprehensive analysis of the client's tax position and documentation necessary to submit a WHT refund application, as well as preparation of a WHT refund application and support in the process of its submission. Take advantage of our structured process supported by many years of experience of our specialists using advanced IT tools (Engagement Center).
How do we respond to the needs of your company?
Comprehensive analysis
Structured and proven process
Client representation before the tax authorities
Effective management and transparent cooperation process
In addition to the WHT Navigator, we can offer the following services:
- Identification of the impact of amendments to Polish withholding tax regulations on future tax settlement processes in a specific case. The conclusions will be presented in the form of a Memorandum,
- Help in the certification process based on the WHT Navigator. Checking if it is possible to use a reduced tax rate or tax exemption. Help in preparing a relevant statement as required by tax authorities,
- Support in obtaining an Opinion and analysis of eligibility for a withholding tax exemption,
- Consultation in the procedure of confirming overpayment and refunding the withholding tax,
- Help with the documentation, including IFT-2R, PIT-8AR.
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