This week has seen the Supreme Administrative Court (SAC) publish a statement of reasons for its judgment of 31 January 2023 in case II FSK 1588/20 regarding the duty to apply the beneficial owner test when paying dividend. SAC confirmed that the dividend payer must check if the recipient is beneficial owner of the dividend.

Below are the major conclusions that can be drawn from SAC’s reasoning:

  • Relying on the so-called “Danish cases” before the Court of Justice of the European Union (CJEU) (judgment of 26 February 2019 in cases C-116/16 and 117/16), SAC held that the duty to check if the dividend’s recipient is its beneficial owner is consonant with the purpose of Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. According to SAC, this is also supported by Article 22c(1) of the Polish CIT Act.
  • SAC said that the above conclusion is unaffected by the fact that neither Article 22(4) of the CIT Act nor the Directive expressly lays down the beneficial owner verification requirement.
  • SAC noted that the beneficial owner status of the dividend recipient had to be verified even before the due diligence requirement was introduced in Article 26(1) of the CIT Act in 2019.
  • As regards the scope of the obligatory test, SAC observed that each case should be approached individually, depending on the availability of information enabling the payer to verify the beneficial owner status of the recipient. When assessing if the payer exercised due diligence, regard must be had to a number of factors, including mainly its position in trade, the structure of entities of which it is a part, the degree to which its activity is professional, and the existence and type of (personal, equity, organisational) connections between entities.
  • In SAC’s view, the beneficial owner test may be applied subject to the options available to the payer and does not mean the payer has to conduct full proceedings as if it were a tax authority. Thus, while a tax authority may challenge the results of such test, it must point to material elements of the abuse potentially committed by the payer.
  • As such, the burden of proof is divided between the payer and the tax authority. Specifically, the payer must exercise due diligence to verify if the dividend’s recipient is its beneficial owner. And the tax authority, if challenging the result of such verification, must prove the constitutive elements of abuse based on the all relevant circumstances, including that the recipient of the dividend is not its beneficial owner.
  • SAC approved the use of the look-through approach, saying that it enables preferential taxation or full exemption in a situation where, even though the dividend is paid to an intermediary, the beneficial owner is identifiable and is based in the territory of the European Union (EEA).

Accordingly, Polish payers should revisit their implemented processes to ensure that the required due diligence is exercised before dividend payments.

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.