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July 21, 2022
2022-1105

Poland Tax Authority’s approach may lead to potential issues when applying withholding tax relief at source based on management board's statement

  • Poland's current pay and refund withholding tax (WHT) regulations have certain requirements for applying WHT relief at source for qualifying payments.
  • Based on the current practice of the tax authorities, Polish entities applying WHT relief at source based on management board statements (one of the alternatives), may be allowed to do so only for a single period of a maximum four months during a tax year.
  • The Polish Legislature is aware of this matter and have started to take action to address the issue for 2023. However, there may be challenges remaining for 2022.
  • The current practice should be taken into account by international groups planning their approach with respect to the Polish WHT requirements.

Based on Poland's current pay and refund withholding tax (WHT) regulations, if the total amount of payments subject to WHT (i.e., dividends, interest and royalty payments) to a related party exceeds PLN2 million (m) annually (approximately US$400,000) per recipient, applying the WHT relief at source by a Polish payer may only be possible upon either:

  1. Obtaining a WHT clearance opinion of the Polish Tax Authority
  2. Filing a statement with the tax authorities by the management board of the Polish paying entity, confirming that all requirements to apply the WHT relief have been met, including the beneficial owner status and a real business activity criterion.

The current regulations provide that the above statement of the management board should be filed by the seventh day of the month following the month when the PLN2m threshold was exceeded (i.e., within the statutory deadline for paying the WHT for a given month). In the case when the Polish payer intends to apply the WHT relief on following payments to the same taxpayer and it does not obtain a WHT clearance opinion, it generally should be allowed to do so for three months following the month in which the PLN2m threshold was exceeded (in such a case additional procedural steps must be followed as at the end of that period).

Nevertheless, the latest practice of the tax authorities suggests that they are unwilling to accept following management board statements in a given year. Based on the current wording of the Polish WHT regulations, the tax authorities indicate that they will accept only one management board statement (accompanied then with a confirmatory statement filed at the end of a period when payments were made) regarding a given recipient of payments.

In practice this means that the Polish entities that decided to apply a WHT relief at source based on management board statements, may be allowed to do so only for a single period of a maximum four months during a tax year.

The above issue has already been identified also by the Polish legislature and the draft legislation is in process to extend the above period until the end of a tax year of a Polish payer. However, based on the current wording of the draft legislation, it is planned that the new regulations would enter into force only from 1 January 2023, still leaving taxpayers in a difficult position for the remaining part of 2022. The draft legislation is currently at its initial stage, discussed within the Ministry of Finance (before initiating the legislative procedure in the Polish Parliament). Representatives of the Ministry of Finance also declared that they will consider available options to aid Polish payers in 2022, but no particular measures have been confirmed yet.

From the business perspective, it is important to identify whether the management board statement has been already filed by the Polish payer in order to benefit from the WHT relief at source on outbound payments from Poland. In such a case (subject to further conditions) the WHT relief could be applied for the total maximum period of up to four months per tax year. Payments of the Polish payer made to the same taxpayer during the same tax year but outside of the above-mentioned maximum four-month window, may still benefit from the WHT relief at source based on the WHT opinion (if obtained in advance) or should be subject to the WHT pay & refund mechanism, whereby WHT needs to be paid at 19% or 20%, before an application for a refund can be filed.

This latest development in the practice of the Polish tax authorities should be taken into account by international groups planning their approach with respect to the Polish WHT requirements.

For more information on the new draft regulations covering various tax topics, see EY Global Tax Alert, Poland proposes significant changes to Corporate Income Tax law, dated 7 July 2022)

Future Global Tax Alerts will report on further developments in this area.

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For additional information with respect to this Alert, please contact the following:

EY Doradztwo Podatkowe Krupa sp.k., Warsaw

EY Doradztwo Podatkowe Krupa sp.k., Wroclaw

Ernst & Young LLP (United States), Polish Tax Desk, New York

 

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