On 15 November 2021 the President signed the legislative package introducing a sweeping reform of the Polish tax system (called Polish Deal).

The Polish Deal amends also corporate income tax legislation to introduce the final set-up for the WHT mechanism.

1. WHT collection mechanism

The WHT mechanism introduced by the Polish Deal is of a hybrid nature, with both pay-and-refund and relief-at-source elements. The particular collection scheme applied will depend on the type of the payment (the “what” test), the beneficiary status as related vs. unrelated party (the “who” test) and the total amount paid to the given taxpayer (the “how much” test).

The pay and refund mechanism will apply to:

  • passive income or income which should for economic reasons be treated as such:
    • interest, copyrights and related rights, rights (or sale of rights) to inventions, trademarks or industrial designs, royalties for the transfer of a secret formula or production process, or for the use of (or the right to use) an industrial device, including a means of transport, or a commercial or scientific device, or for the transfer of industrial, commercial or scientific know-how;
    • dividends and other corporate profit distributions;
    • income which, for no valid commercial reasons, was not treated as any of the foregoing;
  • income paid to related parties, if the total amount of payments in any way subject to Polish WHT which are made to the same taxpayer has exceeded PLN 2M within the withholding agent’s tax year (the tax is withheld from amounts in excess of the PLN 2M threshold).

The relief at source mechanism will apply to:

  • income other than passive income, such as payments for professional/management services (advisory, accounting, market research, legal, advertising, management and control, data processing, staff recruitment and acquisition, guarantees and suretyships, etc.);
  • passive income paid to unrelated parties;
  • passive income paid to related parties, if the total amount of payments subject to Polish WHT which are made to the same taxpayer has not exceeded PLN 2M within the withholding agent’s tax year.

2. Other WHT changes

  • As regards the anti-fraud due diligence rules which require the Polish withholding agent to verify if it is indeed lawful to exempt the payment, forbear collecting the tax or apply a preferential tax rate, the new law retains these and makes it clear that whether or not such due diligence has been exercised is to be determined by reference to not only the nature and size of the Polish agent’s business but also to intercompany relations (as defined in transfer pricing regulations) with the taxpayer.
  • There is a new regulation allowing taxpayer’s residence to be evidenced by a certificate of residence in copy, provided the details on the copy may not be reasonably doubted of being not in accordance with the facts.
  • The previously available option to apply WHT preferences on the basis of exemption opinion has been modified by replacing exemption opinion with preferences opinion.
  • The beneficial owner definition has been changed so that now the beneficial owner is an entity that meets all of the following requirements:

a. receives the payment for its own benefit, and in particular decides independently on its use and incurs the economic risk of its total or partial loss,

b. is not an intermediary, representative, trustee or any other entity required to transfer the payment to some other entity in whole or in part, and

c. carries on genuine business activity in the country in which it is established, if the payments are received in connection with business, and whether or not it carries on genuine business activity is to be determined with account taken of the nature and scale of its business in relation to the payment (the new law gets rid of the reference to CFC regulations).

If this issue pertains to your business and you are interested in our assistance, please do not hesitate to 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.