This is to let you know of the latest favourable tax rulings concerning use of the so-called look-through approach by Polish withholding agents.

In withholding tax it is the general rule that whether or not a preferential treatment applies must be verified by reference to the status of the direct recipient of the payment.

In contrast, under the look-through approach, preferential treatment essentially depends on the status of the party that is not the direct recipient but is considered to be liable to tax on the payment and (if this is a legal requirement) is its beneficial owner. While this approach has no express grounding in the CIT Act, it has been discussed among practitioners for a long time.

There are a number of recent private tax rulings on the subject by the Director of National Revenue Information (“Authority”):

  • In its ruling of 8 August 2022 (ref. 0111-KDIB1-3.4010.322.2022.3.IZ), the Authority approved the applicant’s view that the look-through approach may be applied by group companies in their cash pool arrangement where the pool leader is a foreign entity. According to the Authority, where cash pool interest is beneficially owned by a Polish tax resident, there is no duty to withhold the tax.
  • In its ruling of 28 June 2022 (ref. 0111-KDIB1-2.4010.174.2022.2.MZA), the Authority confirmed that the look-through approach can be used to omit what is only an intermediary entity in the chain of royalty payments and apply the double tax treaty by reference to the actual beneficial owner of the payments. The Authority also confirmed that the management representation under Article 26(7a) of the CIT Act may be made to such beneficial owner.
  • In its ruling of 14 June 2022 (ref. 0111-KDIB2-1.4010.128.2022.2.AR), the Authority agreed with the applicant that, based on the look-through approach, a withholding agent has the right to apply dividend tax exemption under Article 22(4) of the CIT Act by reference to payments to its grandparent company which is the beneficial owner of the dividend. At the same time the Authority confirmed that in such a case the agent’s management are authorised to make the Article 26(7a) representation to the grandparent company.

These rulings make it clear that the Authority is increasingly in favour of the applicability of the look-through approach. However, Polish withholding agents should analyse these issues on a case-by-case basis and ensure they are on the safe side taxwise.

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.