These new requirements will essentially provide certain conditions that must be met in order for a withholding tax reduction or exemption to apply in relation to payments to non-residents under tax treaties or other special regulations. This means that if the conditions are not met, then standard domestic rates must be applied, and a refund subsequently requested. These decrees are to now apply from the 1st July, 2019 in respect of royalty and interest payments and from 31st December, 2019 for dividend payments.
This will be a far-reaching reform of the WHT which will impact international tax groups.
- Previously, payments for interest, royalties, dividends and certain services are subject in Poland to WHT exemptions or lower treaty-based rates.
- But under the new proposed measures, the basic rule assumes collection of either 19% or 20% of the payment by the Polish tax remitter, shifted to the tax office, while foreign recipients of the payments will be permitted to request a WHT refund.
Following on from these changes, WHT will become compulsory for certain cross-border payments. Even if a lower rate or an exemption exists, for example under a bilateral tax treaty entered into by Poland, the WHT has to be withheld in full by the withholding remitter based on Polish domestic law (at either 19% or 20%) and submitted to the relevant tax authority. A refund might be provided by the tax authority after it has confirmed the right of the non-resident taxpayer to benefit from a lower rate or an exemption.
Theoretically, these alterations will affect cross-border payments greater than PLN 2 mln per annum paid to a non-resident taxpayer. Payments that might be affected by these changes include: dividends, interest, royalty fees, as well as numerous services (such as marketing, management, advisory or guarantees).
WHT Refund Method
When paying WHT to the tax authority it can be recovered based on an application filed by either the non-resident taxpayer (the owner who benefits from the payment), or the remitter (if it occurs the economic burden of such withholding – e.g., by the submission of the gross-up procedure). In theory, such reimbursements should be achieved within six months from the application date; nevertheless, a submission might prompt additional investigation proceedings which may cause additional postponements.
Other Methods in Order to Alleviate WHT
Tax remitters (i.e., the withholding agents) will have the possibility to apply the current regime to any payments exceeding PLN 2 mln by filing a supplementary statement (together with the appropriate documents) to the tax authority. This statement and documents have to confirm in particular:
- completion of standard formal requirements (e.g., gaining certificate of tax residency.), and
- implementation of the due diligence, as well as confirmation of the foreign taxpayer status in its home jurisdiction (specifically, in reference to its beneficial owner status and conducting business activity in home jurisdiction – i.e., revenues established in Poland have to be assigned to the genuine business activity rendered in home jurisdiction).
In doing so, this will let the withholding agents to apply the lower rate or the exemption directly, but the withholding agents will be responsible under the Penal Fiscal Code.
There will also be an option for tax remitters to apply to the tax authorities for a pre-approved judgement (permitting a possible exemption from WHT) with respect to certain types of cross-border payments – e.g., dividends or interest payments for which the applied provisions of the EU Parent-Subsidiary Directives or EU Interest-Royalties Directives are relevant.
With these now planned amendments coming into force from the 1st July, 2019 and will be expected have a major bearing on both Polish remitters and the non-residents involved (lenders, shareholders, and licensors or service providers).
For your information, the new regulation will not afford for any ‘grandfathering’ clause, which means it will be compulsory for parties to such cross-border activities to authenticate their active agreements (as well as credit facility agreements), as some these agreements may comprise of gross-up clauses that are not accommodated within the new rules.
Based on this authentication, the remitters possibly will require to work out new procedures with respect to their withholding responsibilities. The new rules have to be also taken into account when negotiating new agreements that will result in payments of interest, royalties or service fees from 1st July, 2019.
If you have any questions or queries please do not hesitate to contact getsix®.