After expectations had been mounting for many months, the Finance Ministry finally published, for the first time ever, official and binding tax guidance on the application of beneficial owner (BO) test in the context of withholding tax (WHT). You may recall that the two previous versions of this document, dated 2019 and 2023, were mere drafts and never got to be implemented.

The guidance presents a challenge for all Polish withholding agents, particularly for companies about to pay dividends literally within days, as they are already required to ensure compliance with the new provisions.

Below are selected guidelines extracted from the document:

  1. BO test requirement for passive income payments and elucidation on certain negative test results:
    • According to the Finance Ministry, passive income payments are particularly prone to being exploited in tax avoidance schemes, with BO test designed to prevent such abuse.
    • The BO test requirement applies to all the passive income payments, i.e. dividends, income and royalties, whatever their amount and whether or not the requirement is expressly provided for in a double tax treaty. The duty is related to use of preferential tax rates or exemptions under domestic or international law.
    • The FM’s guidance provides examples of negative test results indicating intermediary status, lack of own benefit in the payment or lack of business substance (no genuine business), which excludes beneficial owner status.
    • On the other hand, there is no requirement to run the BO test with respect to fees for  intra-group services of an intangible nature (“intangible services”).
  2. Official introduction of the look-through approach (LTA):
    • Subject to a number of additional conditions, LTA allows preferential WHT treatment to be applied even where the direct recipient of the payment is not its beneficial owner, provided a BO is identifiable.
    • LTA is optional for taxpayers and withholding agents.
  3. Use of shared assets or human resources:
    • In certain cases companies may use shared resources (e.g. personnel, office space) obtained from other group entities at no cost. This does not automatically defeat the BO status on condition the payment’s recipient carries on substantive (genuine) business activities and satisfies the other limbs of the BO test.
    • Any such use of shared resources must be carefully reviewed to ensure it supports independent operations and is not indicative of lack of business substance.
  4. Extended range of entities to which the BO test may apply:
    • This is an auxiliary verification tool used in situations where the recipient of the payment is not its BO and the look-through approach is inapplicable solely due to lack of knowledge as to any follow-on payment.
  5. BO status presumption under PS Directive:
    • There is no need to apply the BO test for any profit distribution which is taxable at least once within the EU.
    • However, the option for the withholding agent to apply this “BO status presumption” may not modify the formal statutory duties otherwise incumbent on the taxpayer (recipient), such as the requirement to prove its BO status when applying for a refund of the tax.

We would recommend ensuring that the interests of the Polish withholding agents and the foreign payees are safeguarded in light of the recent changes. To achieve that, you may want to:

  1. urgently check available preferential treatments before the upcoming payments of passive income;
  2. revise and adjust your BO testing procedures;
  3. verify your documentation to enable preferential WHT treatments;
  4. revisit your internal due diligence standards, review and update your WHT processes;
  5. analyse your payments to identify if it is possible and reasonable to use the new solutions (LTA or shared resources);
  6. review any preference opinions you hold, WH-OSC filings you have made and WHT proceedings you are involved in for any opportunities to secure preferential treatment based on the new FM guidance.

If this issue pertains to your business and you are interested in our assistance, please contact us.

This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.