Interpretations concerning withholding tax – different approaches by the Polish Ministry of Finance
Withholding tax (WHT) has long been one of the key issues for companies engaged in international business. Recent general interpretations issued by the Polish Ministry of Finance aimed to clarify the conditions for WHT exemptions but have, in turn, introduced additional uncertainties.
In this article:
New interpretations of withholding tax – what is changing?
The Polish Ministry of Finance has recently issued two general interpretations regarding withholding tax.
- The first, dated November 15, 2024 (No. DD9.8202.1.2024), concerns the dividend exemption and has been positively received, as it eliminates key discrepancies in the application of the regulations.
- The second, dated November 20, 2024 (No. DD9.8202.2.2024), relates to the WHT exemption for interest and royalty payments. However, it has raised many concerns among businesses and tax advisors.
In both cases, the provisions of the Polish Corporate Income Tax (CIT) Act are worded identically, stating that the WHT exemption applies when a company receiving royalties or dividends:
does not benefit from an exemption from income tax on all of its income, regardless of the source from which it is derived.
(Article 22(4)(4) of the CIT Act and Article 21(3c) of the CIT Act)
Despite this, the Polish Ministry of Finance has provided different interpretations of these regulations, which justifiably raises serious concerns with the taxpayers.
A step in the right direction for dividend payments
The general interpretation issued on November 15, 2024, addressed the issue of so-called “effective taxation” and confirmed that Polish regulations do not impose such a requirement in relation to the WHT exemption for dividends. Previously, tax authorities often attempted to enforce an interpretation under which taxpayers had to demonstrate that dividend income was actually taxed in the recipient’s country—for example, by proving that no tax reliefs or preferences were applied. This approach led to disputes and uncertainty among payers and taxpayers.
The Ministry of Finance explicitly stated that the lack of actual payment of income tax by the dividend recipient – whether due to tax losses brought forward or the application of an exemption under provisions implementing the Parent-Subsidiary Directive – does not automatically mean a violation of the condition requiring that the recipient “does not benefit from an exemption from taxation on all of its income.”
This is an important clarification that resolves previous discrepancies in the interpretations of tax authorities and administrative courts. In practice, this means that companies and other entities benefiting from tax preferences do not have to fear automatic rejection of the WHT exemption – provided they are not entirely exempt from corporate income taxation.
More details on this interpretation can be found in this article.
Interest and royalties – a problematic interpretation
The general interpretation issued by the Polish Minister of Finance on November 20, 2024, regarding the WHT exemption for interest and royalties introduces a significantly more stringent approach compared to dividends, despite the identical wording of the CIT Act provisions.
The Minister of Finance determined that, in order to qualify for the withholding tax exemption, it is not sufficient for the recipient of the payments to be subject to corporate income tax in their country of residence. Also, they should not benefit from any tax preferences – whether entity-based or activity-based.
In practice, this requires the detailed analysis of the tax systems in the recipient’s country of residence of these interest and royalties. Payers will not only have to verify whether the foreign entity is actually subject to CIT but also assess whether it benefits from any tax incentives, such as sector-specific reliefs, special economic zone exemptions, or preferential tax regimes. A major challenge is that such information is often not publicly available, and obtaining it may require the involvement of foreign tax advisors.
Furthermore, the Minister of Finance’s interpretation suggests that companies should examine not only the general tax rules in a given country but also individual administrative decisions issued in relation to specific taxpayers. This raises concerns about the extent of due diligence required from subsidiaries making payments to related parties—particularly in cases where obtaining detailed information about a shareholder’s tax structure may be difficult or even impossible.
Disputed issues and diverging interpretations
The approach adopted by the Polish Ministry of Finance is highly controversial. The previous interpretation concerning WHT exemptions for dividends ruled in favour of taxpayers, stating that the key criterion is whether the recipient is subject to CIT in their country of residence. However, when it comes to interest and royalties, a much stricter stance has been taken—despite the identical wording of the regulations in both cases.
Further doubts arise regarding the interpretation of EU directives and their transposition into Polish law. The Minister of Finance references EU directives and the Court of Justice of the European Union (CJEU) case law while seemingly overlooking the fact that the Polish CIT Act does not explicitly require effective taxation of foreign entities. Introducing such a condition at the interpretative level raises concerns about compliance with the principle of legal certainty and regulatory stability.
The significance of general interpretations issued by the Ministry of Finance
General interpretations issued by the Polish Ministry of Finance serve as an important interpretative tool, intended to ensure uniform application of tax regulations by tax authorities and courts. Moreover, taxpayers and payers who comply with these interpretations can expect protection against negative consequences from the tax authorities, similar to the effects of individual tax rulings. However, these interpretations are not legally binding sources of law – formally, tax authorities cannot rely on them when determining tax liabilities, although in practice, they often use them as part of their argumentation in tax decisions.
Conclusion
In practice, the issued interpretations mean that even greater caution and case-by-case analysis will be required. It is crucial to follow ongoing legislative work on WHT regulations, as their final form will have a significant impact on companies engaged in international transactions. Withholding tax remains one of the most complex areas of tax law in Poland, and recent developments demonstrate that its’ interpretation continues to evolve.
If your company is facing challenges related to WHT or requires support in analysing the implications of new interpretations, we encourage you to reach out to us. Keeping up with changes and applying them correctly can help protect your business from unnecessary tax risks.
Legal basis:
- Corporate Income Tax Act of 15 February 1992
- General Interpretation No. DD9.8202.1.2024 of the Minister of Finance of 15 November 2024 concerning certain conditions for the application of the exemption set out in Article 22(4) of the Corporate Income Tax Act
- General Interpretation No. DD9.8202.2.2024 of the Minister of Finance of 20 November 2024 concerning the application of certain conditions for the exemption set out in Article 21(3) of the Corporate Income Tax Act
If you have any questions regarding this topic or if you are in need for any additional information – please do not hesitate to contact us:
CUSTOMER RELATIONSHIPS DEPARTMENT
ELŻBIETA
NARON-GROCHALSKA
Head of
Customer Relationships
Department /
Senior Manager
getsix®
Group
***
