Transfer pricing and withholding tax in Poland: when do they affect each other?
Under Polish tax law, transfer pricing can directly affect withholding tax in Poland when a Polish company pays interest or royalties to a foreign related party. A WHT exemption or reduced rate may apply only to the arm’s length portion of the payment. Any excess may trigger both a transfer pricing adjustment and additional withholding tax liability.
In practice, the risk arises when a Polish company pays a foreign related party more than it would have paid an independent counterparty. The non-arm’s-length excess may fall outside the WHT exemption or reduced treaty rate, exposing the company to both a transfer pricing adjustment and additional withholding tax in Poland.
Where a Polish company pays a foreign related party more than it would have paid an independent counterparty, the amount exceeding the arm’s length value may not qualify for a WHT exemption or reduced rate. In practice, the same irregularity may therefore result in both a transfer pricing adjustment and withholding tax arrears.
A transfer pricing analysis in Poland does not replace the other checks required for withholding tax in Poland. The remitter must also verify the recipient’s certificate of tax residence, beneficial owner status, compliance with the due diligence requirement and the possible application of the pay-and-refund mechanism under WHT Poland regulations. The arm’s length nature of the payment and entitlement to WHT relief should therefore be reviewed together before the payment is made.
In this article:
Do transfer pricing rules affect WHT in Poland?
Yes. Transfer pricing affects WHT where the arm’s length nature of the payment is a condition for applying an exemption or preferential WHT rate, or provides evidence of the transaction’s actual commercial substance. The most direct relationship arises in connection with interest and royalties paid to related parties.
Before applying WHT relief, three separate questions should be considered:
| Area of review | Key question | Possible consequence of an error |
|---|---|---|
| Classification of the payment | Is the payment interest, a royalty, consideration for services or another type of income? | Application of an incorrect tax rate or legal provision |
| Arm’s length amount | Would independent parties have agreed the same remuneration? | Limitation of WHT relief to the arm’s length portion and a transfer pricing adjustment |
| Recipient’s entitlement | Is the recipient resident in the relevant jurisdiction and the beneficial owner of the payment? | Refusal of the exemption or treaty rate |
These tests are interconnected, but they are not interchangeable. An arm’s length price does not confirm beneficial owner status, while a certificate of residence does not demonstrate that the payment was determined on market terms.
When can a non-arm’s-length payment disqualify a company from WHT relief?
For interest and royalties, Article 21(7) of the Polish Corporate Income Tax Act limits the exemption to the amount that would have been agreed without special conditions resulting from the relationship between the parties. If the payment is overstated, the excess does not qualify for the exemption.
The domestic WHT rate for interest and royalties listed in Article 21(1)(1) of the Polish Corporate Income Tax Act is generally 20%. The Act nevertheless provides an exemption for qualifying payments between specified companies established in the European Union or European Economic Area, provided that the relevant conditions are met.
These conditions include the recipient’s tax status, beneficial ownership of the payment and a direct shareholding of at least 25%, or an equivalent relationship through a common parent company. The required two-year holding period may be completed after the payment has been made. If this condition is ultimately not satisfied, the recipient must pay the tax together with late-payment interest.
Meeting these formal conditions does not mean that the exemption applies to the entire payment. If the relationship between the parties causes the interest or royalty amount to exceed the arm’s length value, Article 21(7) allows the exemption to be applied only up to the market level. The assessment should use the transfer pricing method most appropriate to the circumstances of the transaction.
Similar provisions appear in many double taxation agreements (DTAs) based on Articles 11 and 12 of the OECD Model Tax Convention. Treaty relief then applies to the amount the parties would have agreed in the absence of a special relationship. The taxation of any excess must be determined under Polish domestic law and the remaining provisions of the relevant DTA. This mechanism also reflects the structure of the EU Interest and Royalties Directive.
Does an understated payment automatically create a WHT shortfall?
No. For corporate income taxpayers, the obligation to collect WHT generally arises when the payment is made. Article 21(7), however, concerns situations in which the amount actually paid exceeds the arm’s length level. A finding that the market amount should have been higher does not automatically create withholding tax on a difference that was never paid.
An understated payment may nevertheless produce other transfer pricing or corporate income tax consequences. These must be analysed separately because not every transfer pricing adjustment requires a corresponding adjustment to the WHT base.
Which transactions create the greatest TP–WHT risk?
The interaction between transfer pricing and withholding tax in Poland creates the greatest exposure where remuneration depends on complex economic assumptions, difficult-to-compare assets or multi-level financing arrangements.
| Transaction | Typical warning sign | WHT risk |
|---|---|---|
| Intra-group loan | Interest rate does not reflect the currency, borrower’s creditworthiness, security or financing term | Part of the interest may be considered non-arm’s-length and excluded from WHT relief |
| Cash-pooling arrangement | No remuneration for the cash-pool coordinator or identical interest rates for participants with different risk profiles | Dispute over the classification of the payment and the arm’s length interest rate |
| Trademark or technology licence | Royalty rate is not linked to the scope of the licensed rights or the benefits received by the licensee | Limitation of the exemption or preferential WHT rate to the arm’s length portion of the royalty |
| Back-to-back financing | The interest recipient obtains funding from another group company or passes the payment onwards on similar terms | Simultaneous risk of challenging both the arm’s length interest rate and beneficial owner status |
| Intangible services | Generic service descriptions, insufficient evidence of performance or duplication of activities already carried out by the Polish company | Dispute over payment classification, tax deductibility and compliance with WHT due diligence |
Intra-group financing
An arm’s length interest rate analysis should reflect the terms of the specific loan, particularly the currency, financing period, repayment schedule, security, debt subordination and the borrower’s creditworthiness. A comparison based on transactions with different parameters or risk levels may not provide sufficient support for the applied interest rate.
Royalties
The royalty should reflect the value of the rights actually made available to the Polish company. A range obtained from a benchmarking database is not sufficient where the scope of the licence or the benefits received do not justify the selected rate.
Intangible services
For advisory, management, advertising or data-processing services, the connection between transfer pricing and WHT is generally less direct than for interest and royalties. Article 21(7) is not a general provision applying to all services.
Nevertheless, the arm’s length nature of the remuneration, evidence that the services were performed and the correct classification of the payment may affect tax deductibility, the scope of the remitter’s obligations and the assessment of whether WHT due diligence has been exercised.
Is transfer pricing documentation sufficient to apply WHT relief?
No. Local transfer pricing documentation and a benchmarking analysis may support the arm’s length nature of the transaction, but they do not replace the documents and tests required under WHT Poland rules. For the purposes of withholding tax in Poland, the remitter must still examine the legal basis for the relief, the recipient’s tax residence, beneficial owner status and the transaction’s actual circumstances.
More information on the required documents and the remitter’s obligations is available in our comprehensive guide to withholding tax in Poland in 2026.
Transfer pricing documentation can nevertheless form an important part of the evidence package. It identifies the functions performed by the parties, assets used, risks assumed, pricing mechanism and consistency of the transaction terms with market conditions.
At the same time, it may reveal information that is unfavourable from a WHT perspective, such as the recipient’s lack of independent financing, limited functions or automatic onward transfer of the funds. Inconsistencies between the agreement, functional analysis and actual payment flows may undermine both the arm’s length nature of the transaction and entitlement to WHT relief.
The Polish Minister of Finance’s explanatory guidance of 3 July 2025 concerning beneficial owner status emphasises the importance of due diligence and an analysis of the recipient’s actual operating circumstances. For the remitter, this means that the WHT documentation should be compared with the functional profile described in the transfer pricing documentation.
A consistent evidence package should include an agreement reflecting the transaction’s actual course, a certificate of tax residence, an analysis of the recipient’s functions and risks, an appropriately selected benchmarking analysis, evidence that the service or other consideration was provided, and documentation supporting beneficial owner status and the exercise of due diligence.
The absence of an obligation to prepare local transfer pricing documentation does not mean that non-arm’s-length conditions are permitted. The arm’s length principle applies irrespective of the documentation thresholds. For material payments, it is therefore advisable to retain a proportionate analysis even where local transfer pricing documentation is not formally required.
Planning for your Polish company or Polish group entity to pay interest or royalties to a foreign related party? Our withholding tax advisory services in Poland can help you verify whether the payment qualifies for an exemption or reduced WHT rate before it is made.
Does the transfer pricing safe harbour also protect a company for WHT purposes?
No. Where the conditions of the transfer pricing safe harbour for a loan, credit facility or bond issue are met, the tax authority will not reassess the taxpayer’s income or loss in relation to the interest rate. This simplification does not, however, automatically confirm entitlement to a WHT exemption or preferential rate.
The recipient’s tax residence, the provisions of the applicable double taxation agreement, beneficial owner status and the remaining conditions of the specific relief must still be verified. Where a statutory exemption is applied, the required capital relationship and the rules governing the pay-and-refund mechanism must also be examined.
How does the PLN 2 million threshold affect a combined TP and WHT review?
Where qualifying payments made during a tax year to the same foreign related party exceed PLN 2 million, the pay-and-refund mechanism applicable to withholding tax in Poland may apply. This is one of the most important procedural elements of the WHT Poland framework for payments to related parties.
The mechanism primarily covers interest, royalties and dividends listed in Article 21(1)(1) and Article 22(1) of the Polish Corporate Income Tax Act.
The threshold does not determine whether a payment is at arm’s length. It does, however, increase the importance of collecting evidence in advance because the remitter must select the appropriate procedural route for applying WHT relief before the payment is processed.
A benchmarking analysis prepared only after the end of the year may be too late. The arm’s length value of the payment and the relevant factual circumstances should be established before WHT relief is applied.
What are the most common mistakes when combining transfer pricing and WHT?
1. Treating TP and WHT as two separate processes
The transfer pricing team reviews the price after the end of the year, while the accounting team accounts for WHT on the payment date. As a result, the WHT relief is applied before anyone confirms whether the payment amount is at arm’s length.
2. Using a benchmarking analysis that does not match the agreement
The analysis covers a different currency, financing period, credit assessment or scope of rights from those applicable to the actual transaction.
3. Failing to reflect the transaction’s actual course
The agreement assigns functions and risks to the recipient that it does not perform or control in practice. This discrepancy may weaken both the transfer pricing analysis and the arguments supporting the recipient’s beneficial owner status.
4. Treating transfer pricing documentation as a complete WHT procedure
Local transfer pricing documentation does not replace a certificate of tax residence, required declarations, verification of the payment recipient or monitoring of the PLN 2 million threshold.
5. Failing to reassess the arrangement after a business model change
A change in financing, refinancing, extension of a licence, restructuring of functions or transfer of asset ownership may mean that the existing analysis no longer reflects the transaction.
How do Polish tax authorities connect transfer pricing and WHT in practice?
The Opole Customs and Tax Office reported an audit concerning interest payments made in the years 2019–2021. The authority concluded that the financing terms were not at arm’s length and that the non-arm’s-length portion of the interest could not benefit from the reduced WHT rate.
The company corrected its tax settlements and paid more than PLN 11.5 million in tax and late-payment interest. The case demonstrates that the risk is not limited to an adjustment of tax-deductible costs. It may also affect a WHT preference applied previously.
How should a combined TP–WHT process be organised?
A coordinated process helps ensure that the transfer pricing analysis and the documentation required for withholding tax in Poland are based on the same facts, agreements and payment flows.
The most practical solution is to conduct a focused review before the first material payment and after each change to the transaction terms:
- Classify the payment based on the agreement and the consideration actually provided.
- Determine the arm’s length level of remuneration and confirm that the benchmarking analysis reflects the terms of the specific transaction.
- Verify the payment recipient and the legal basis for WHT relief, including beneficial owner status, the certificate of tax residence and the applicable double taxation agreement.
- Check the PLN 2 million threshold and the required procedural route before the payment is processed.
- Archive a consistent evidence package so that the transfer pricing, accounting and WHT documentation all describe the same factual circumstances.
For material payments made by a Polish company to a foreign related party, transfer pricing and withholding tax in Poland should be reviewed together before the payment is made. The getsix® team can help assess whether the remuneration is at arm’s length, classify the payment, verify whether a WHT exemption or reduced rate is available, and prepare the supporting documentation. Explore our tax advisory services in Poland or contact us to discuss a planned cross-border payment by your Polish company.
Does the absence of transfer pricing documentation eliminate WHT risk?
No. An exemption from the transfer pricing documentation requirement or remaining below the applicable documentation threshold does not remove the obligation to comply with the arm’s length principle or the remitter’s responsibilities relating to withholding tax in Poland.
The risk depends on the transaction terms and the legal basis for the relief applied, rather than solely on whether an obligation to prepare local transfer pricing documentation arose.
The tax authority may examine the arm’s length nature of the payment even where the taxpayer was not required to prepare such documentation. For material interest, royalties or other payments to related parties, it is therefore advisable to retain an analysis supporting the method used to determine the remuneration.
When should the arm’s length nature of a payment be reassessed?
The arm’s length nature of a payment should not be reviewed only as part of a scheduled benchmarking update. A reassessment is also required when there are material changes to the economic conditions, the parties’ functional profiles, the financing currency or period, the scope of a licence, the payment recipient or the way in which the rights are used.
A transaction may also require an updated analysis even where its formal terms remain unchanged. This may be the case following material changes in interest rates, the debtor’s financial position or the value of the licensed rights.
The analysis should reflect both the transaction’s actual course and the market conditions prevailing during the period in which the payments are made.
Summary
Transfer pricing affects withholding tax in Poland primarily where the amount of interest or royalties differs from arm’s length conditions. Under WHT Poland rules, an exemption or preferential rate may apply only to the portion of the payment corresponding to its market value.
Transfer pricing documentation is also relevant because it may substantiate the payment recipient’s actual role and explain how the remuneration was determined.
The assessment should not, however, be limited to the benchmarking analysis. Correct WHT treatment requires consistency between the price, the agreement, the transaction’s actual course, the functions performed by the parties and the recipient’s beneficial owner status.
For material or unusual cross-border payments, a combined transfer pricing and withholding tax in Poland review should be completed before the payment is made.
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
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