Latest changes to the Polish withholding tax regime
31 January 2022
The pay and refund mechanism introduced in 1 January 2019 to Polish CIT, effectively suspended until the end of 2021, after amendments, came into force from and including 1 January 2022.
The amendments include limiting application of the pay and refund mechanism to payments between affiliated entities only and limiting its scope to passive payments: dividends, interest and royalties.
Non-affiliated entities (including third-party lenders) should continue to benefit from relief-at-source.
Also, copies of tax residency certificates will be allowed in place of original copies required previously.
Pay and refund mechanism
If during a single tax year a tax remitter pays a single affiliated taxpayer more than PLN 2 million in interest, dividends or other payments that, as a rule, are subject to withholding tax, the tax remitter will, as a rule, be obliged to withhold the tax at the basic domestic rate (19% or 20%) and disregard any domestic exemptions or exemptions/reduced rates as applicable under the relevant tax treaty.
The above does not apply:
- to payments between affiliated companies if the tax remitter obtains an opinion from the tax authorities that on the basis of the provided evidence the exemption under the implemented provisions of the Parent Subsidiary Directive and Interest Royalties Directive or provided for by the double tax treaties can be applied; and
- if the management of the tax remitter submits a statement that it has gathered all relevant documentation to apply the exemption or reduced rate, and that, after performing an analysis, it does not have a reason to believe that circumstances exist that would deny the application of the tax exemption or reduced tax rate; in particular, the tax remitter is not aware of circumstances denying the taxpayer the status of beneficial owner of the payment.
A taxpayer may apply for a refund of the overpaid tax withheld by the tax remitter. In addition, tax remitters who incurred the effective tax burden (eg due to gross-up clauses) can apply for a refund. The tax must be returned without undue delay and within six months.
To whom the pay and refund mechanism applies
The mechanism applies only to payments made between affiliated entities, that is:
- entities of which one entity exercises a significant influence on at least one other entity; or
- entities on which a significant influence is exercised by:
- the same other entity; or
- the spouse or a relative by consanguinity or affinity up to the second degree of a natural person exercising a significant influence on at least one entity; or
- a partnership without legal personality and its partners (partner); or
- limited partnerships and limited joint-stock partnership with their registered office or management in the territory of the Republic of Poland and its general partner; or
- general partnerships being CIT taxpayers with their registered office or management in the territory of the Republic of Poland and its partner; or
- a taxable person and their foreign establishment, and in the case of a tax capital group – a company being its part and its foreign establishment; and
The exercise of significant influence is understood as:
- owning, directly or indirectly, at least 25% of:
- equity interests; or
- voting rights in controlling, legislating or managing bodies; or
- shares or rights to participate in profits, losses or assets, or their expectatives, including units and investment certificates;
- possessing the actual ability of a natural person to influence the making of key economic decisions by a legal person or an organisational unit without legal personality; or
- being married or in the presence of kinship or affinity up to the second degree.
Types of payments affected
The pay and refund mechanism applies only to 'passive revenues', ie those treated as interest, royalties and dividends. Other payments subject to withholding tax, eg intangible services fees, are not affected.
Allowing use of copies of tax residency certificates
New CIT regulations should also facilitate the application of double tax treaty-based preferences since it enabled the utilisation of copies of tax certificates to evidence the tax residency of the taxpayer also if the payment exceeds PLN 10,000. However, the tax remitter is obliged to obtain an original copy of a certificate should it have any doubts regarding its validity.
Should you have any questions, please do not hesitate to contact Maciej Kulawik or Brunon Surma, members of the tax practice at Allen & Overy’s Warsaw office.