The Minister of Finance on 1 August published a draft regulation to cure legislative errors regarding management representations WH-OSC and WH-OSP. The Regulation is set to enter into force on the day following its publication.
Where is the problem?
As of 1 January 2022, passive income payments above PLN 2 million which the remitting agent makes during a tax year to foreign affiliates are generally subject to WHT at the statutory rate of 19% or 20%.
One way to benefit from preferential tax treatment under special provisions or double tax treaties, including in relation to any surplus over PLN 2 million, is for the remitting agent’s management to submit a WH-OSC or WH-OSP representation (for CIT and PIT, respectively).
Initially, the mechanism was put in place on 1 January 2019. The way the law was originally worded and as intended by the lawmakers, the representations could be renewed for recurring payments during the remitter’s tax year: after the first representation was submitted, preferential rules could continue be applied, provided that further representations were filed within statutory timeframes.
In their further amendments to tax statutes, effective from the beginning of 2022, the lawmakers wanted to liberalise the technicalities of submissions and redrafted the law. In doing so, however, they linked the submission deadline for original representations with the one for paying the tax for the month in which the PLN 2 million amount was exceeded.
As a result, when current regulations are interpreted literally, the remitting agent may only once submit the so-called original representation, on the payment date of tax for the month in which PLN 2m was exceeded, and then the so-called closing representation, by the seventh day of the month following the end of the second month following the month in which the original submission was made. Such a restrictive approach has recently been confirmed by a specialised tax office dealing with WHT.
The other concern was whether the submission deadline was one that could not be restored – that is to say, whether by missing it the remitting agent would irretrievably lose its right to apply the preferential rules for WHT purposes.
Ministerial changes in the draft regulation (“Draft Regulation”), including the announced amendments to tax acts
As planned, the changes distinguish between:
- representations submitted on time which are valid on the effective date of the Draft Regulation and those for which the submission deadline on such date has not expired;
- representations not submitted on time or those no longer valid on the effective date of the Draft Regulation.
Re: 1
This is addressed by the Draft Regulation. The following applies to representations submitted on time which are valid on the effective date of the Draft Regulation and those for which the submission deadline on such date has not expired it:
- the validity of the original representation will be extended until the end of the tax year in which the remitter made the original submission;
- the submission deadline for the so-called closing statement will be extended until the end of the month following the end of the tax year in which the remitter made the original submission.
Re: 2
While this situation is not addressed by the Draft Regulation, its explanatory memorandum promises that the problem with representations which are not valid on the effective date of the Draft Regulation “will be resolved immediately via the envisaged statutory amendments, which will enter into force on 1 January 2023 and apply retroactively from 1 January 2022”.
The relevant legislative work is ongoing and we will keep you updated on its outcome.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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