Why the delay?
According to press reports, the next postponement of the new rules is dictated by a desire to allow taxpayers to become better prepared to correctly perform their new obligations, including adaptation of their IT systems. Undoubtedly, the planned changes are also affected by the limitations resulting from the COVID-19 pandemic, as well as the failure so far to adopt final new regulations governing WHT collection, on which work is still ongoing. Therefore, it should be expected that the WHT regulations that come into force at the end of this year will differ from those currently published.
What will change in the regulations?
The new rules for collecting WHT were originally supposed to come into force on 1 January 2019, but this date was moved many times, most recently to 1 July 2021. Such a long grace period, and the repeated reports on amendment of the regulations, presented a certain picture of the direction the Ministry of Finance is heading. As we discussed in our previous alert, the ministry is planning, among other things, to:
- Limit the pay-and-refund mechanism (where the remitter deducts the tax and the taxpayer then applies for a refund) to related entities
- Introduce a rule that the threshold of PLN 2 million in annual payments to a given recipient, resulting in the necessity to collect the tax, will apply only to passive payments (such as dividends, interest and royalties), and thus intangible services will not be subject to this threshold
- Extend the scope of the opinion on application of exemptions to cover exemptions and reduced rates applied pursuant to tax treaties
- Impose stricter due diligence requirements in the case of payments to related parties.
The additional time given to taxpayers, along with the subsequent postponement of entry into force of the new regulations, can be used to review WHT transactions and the procedures applied in this respect in light of the new regulations.
Changes effective from 2019
At the same time, we should remind readers that some of the regulations entered into force from the beginning of 2019. The regulations already in force concern:
- The need to act with due care in the process of verifying the conditions for applying a lower rate, tax exemption or non-collection, and determining the beneficial owner of the receivable
- A general clause excluding the right to claim a tax exemption for dividends and interest paid to another EU member state if the payment was artificial, aimed only at taking advantage of the exemption, or was contrary to the object and purpose of the regulations introducing the tax exemption
- An additional 10% tax liability if, when making the payment, the payer has not verified the recipient of the transfer, the verification was not adequate to the nature and scale of the payer’s activity, or the payer submitted a false declaration claiming the tax exemption.
The most important new requirement is WHT due diligence connected with verification of beneficial owners. The tax authorities confirm that examination of beneficial owner status is an indispensable element of the WHT due diligence standard.
Under the draft of the official WHT explanations issued by the Ministry of Finance, WHT due diligence can be ensured by a professional (tax adviser) conducting verification (certification) of transactions subject to withholding tax in Poland. The examination of beneficial owner status is intended to gather documentation as well as arguments confirming that the existing structure is not artificial and aimed solely at achieving a tax benefit. Lack of WHT due diligence or improper arrangements regarding beneficial owners may result in refusal to apply preferential WHT treatment in Poland.
KR Group offers support in WHT certification, in the form of independent confirmation of WHT due diligence, and verification of counterparties and transactions for the purposes of applying the exemption from withholding tax. The result of the analysis is a report confirming compliance of the taxpayer’s rules and documents with the requirements of the CIT Act. KR Group is also ready to prepare a written WHT due diligence procedure taking into the account the industry specifics and additional client requirements.