WHT and TP in the pharmaceutical industry in Poland: obligations regarding payments to related entities and one of the most frequently audited areas.

Your company pays for a patent licence, interest on an intra-group loan, remuneration for management services and a dividend to its parent company. Each of these payments triggers two theoretically independent regimes: withholding tax and transfer pricing. You settle and document them separately, but they are based on the same facts, and the authority reads them together.

In companies forming part of capital groups – and pharmaceutical companies are usually among them – payments of this kind are practically an everyday occurrence. At the same time, however, they are among the areas most frequently and most meticulously scrutinised by the tax authorities.

Key takeaways

• The domestic WHT rate is 20 per cent for receivables under Article 21(1) of the CIT Act and 19 per cent for dividends under Article 22(1).
• The exemption for interest and royalties covers only the amount corresponding to arm’s length conditions. Any excess resulting from the relationship does not benefit from the preference (Article 21(7) of the CIT Act).
• Article 22 of the CIT Act contains no provision structurally corresponding to Article 21(7). In the case of dividends, the risk is assessed differently, primarily through Article 22c (the so-called minor anti-avoidance clause).
• The pay and refund mechanism applicable once PLN 2 million is exceeded covers receivables under Article 21(1)(1) and Article 22(1). Intangible services under Article 21(1)(2a) do not fall within this catalogue.

Which foreign payments made by a pharmaceutical company are subject to withholding tax?

It all begins with two statutory catalogues. The first, set out in Article 21(1)(1) of the CIT Act, covers interest, copyright and related rights, rights to inventive designs, trademarks and ornamental designs, the sale of those rights, receivables for making available a secret formula or production process, the use of industrial, commercial or scientific equipment, and know-how. The domestic rate here is 20 per cent. Separately, in Article 21(1)(2a), the legislator lists advisory, accounting, market research, legal, advertising, management and control, data processing and recruitment services, guarantees and sureties, as well as services of a similar nature.

The second catalogue, set out in Article 22(1), concerns dividends and other income from participation in the profits of legal persons. In this case the rate is 19 per cent.

These are the domestic rates, not the rates actually withheld. In order to apply the rate provided for in a double tax treaty or to apply a statutory exemption, you need a certificate of residence and you must exercise due diligence (Article 26(1) of the CIT Act). Its assessment takes into account the nature and scale of your activity (as well as, in practice, the activity of the entire group) and the relationship with the recipient. The Act does not define due diligence, so do not count on a closed list of documents that will always ensure it.

Why does the licence fee rate determine both transfer pricing and withholding tax at the same time?

A licence fee for a patent, trademark or know-how is a receivable under Article 21(1)(1) of the CIT Act and, at the same time, a controlled transaction whose price should correspond to arm’s length conditions (Article 11c). Both obligations meet in a single provision.

Article 21(7) of the CIT Act operates as follows: if, as a result of the relationship, the conditions differ from those that would have been agreed by independent entities, and the amount of the receivable is higher than would have been expected in the absence of that relationship, the exemption applies only to the amount corresponding to the arm’s length level. A non-arm’s length royalty rate therefore entails not only the risk of an income adjustment, but also an exemption narrower than the amount you actually paid.

The second question is: which entity in the group is economically entitled to the income from the intangible asset. The 2022 OECD Transfer Pricing Guidelines answer this through an analysis of DEMPE functions, that is development, enhancement, maintenance, protection and exploitation. Legal ownership of title to a patent does not in itself determine the remuneration. In the local file, this corresponds to the requirement to describe the analysis of functions, risks and assets (Article 11q(1) of the CIT Act).

What has to be established in relation to interest on an intra-group loan beyond the interest rate?

Interest falls within Article 21(1)(1) of the CIT Act and, on the transfer pricing side, is subject to an arm’s length assessment. It is necessary to prepare a reliable and complete benchmark confirming that the method of calculating the interest has been set on arm’s length terms. Sometimes even more detailed analyses are required, consisting in an assessment of whether the company’s overall level of “indebtedness” is at arm’s length – in short, whether a company operating on the market would in fact be able to take out such a large loan and continue to function (the so-called debt capacity analysis).

The legislation also provides for certain documentation simplifications, for example the safe harbour, where the interest rate falls within the parameters of the minister’s announcement.

The safe harbour, however, only simplifies the TP documentation issue. It does not release you from examining the status of the recipient of the interest, it does not replace the assessment of borrowing capacity and it has no effect on the debt financing cost limit under Article 15c of the CIT Act, which you calculate independently.

When does the exemption for a dividend paid to a parent company not apply?

The exemption under Article 22(4) of the CIT Act requires, among other things, that the recipient be a company subject to tax on its entire income in a European Union or European Economic Area state, holding directly at least 10 per cent of the shares for the required period and not benefiting from an exemption covering all of its income.

Irrespective of those conditions, Article 22c of the CIT Act applies, which excludes the preference where benefiting from it would be contrary to the subject matter or purpose of the provisions on the exemption or where it constituted the main purpose of the transaction and the manner of acting was artificial.

The case law is consistent on this point: as the payer of the dividend, you cannot confine yourself to formal documents, you must also examine whether the payment of the dividend is consistent with the company’s function within the group and does not lead, in short, to tax optimisation. This was indicated by, among others, the Supreme Administrative Court in its judgment of 6 October 2023 (II FSK 1333/22), referring to the case law of the CJEU in the Danish cases of 26 February 2019.

How should intangible services from headquarters and research services be classified?

The order of the analysis is the reverse of the intuitive one. First you check whether the service falls within the catalogue set out in Article 21(1)(2a) of the CIT Act, and only then do you turn to the double tax treaty. If the remuneration constitutes the business profit of a non-resident enterprise without a permanent establishment in Poland, no tax may arise.

The greatest scope for dispute concerns services of a similar nature. The test developed by the Supreme Administrative Court in its judgment of 5 July 2016 (II FSK 2369/15) requires that the features of the services listed in the provision prevail over the features of a service not listed there. The intangible nature of a service alone is not sufficient.

On the transfer pricing side, the same services require demonstrating an actual benefit for the service recipient and justifying the cost allocation keys.

Who is the beneficial owner of royalties and interest?

The definition in Article 4a(29) of the CIT Act requires three elements jointly. The recipient receives the payment for its own benefit, independently decides on its use and bears the economic risk of losing it. It is not an intermediary, representative, trustee or an entity obliged to pass the payment on. It carries on genuine business activity, assessed accordingly under Article 24a(18).

The tax explanations issued by the Minister of Finance on 3 July 2025 and published on 9 July 2025 add an important indication to this: the required asset and personnel base must be adequate to the type of activity carried on. Different expectations apply to a manufacturer, different ones to a research and development centre, and different ones to a holding company. The absence of an in-house laboratory therefore does not in itself determine the absence of genuine activity.

In practice, during audits the authorities often set very high requirements before accepting that the taxpayer (the recipient of the payment) is the beneficial owner. Sometimes the requirements of the auditing authority are in fact higher than what follows from the Ministry of Finance’s explanations. That is why it is so important to develop a specific strategy for conducting the tax or customs and fiscal audit. It is critical that the arguments of the audited company supporting the correctness of its settlements be consistently raised and documented from the outset of the case.

What does an audit of withholding tax and transfer pricing look like?

What is extremely important, both areas are among the audit priorities of the tax administration. Withholding tax is examined primarily with regard to the status of the recipient of the payment and the genuine activity carried on by foreign holding companies, and transfer pricing with regard to the consistency of the declared model with the actual settlements.

In the pharmaceutical industry the risk is higher than average, because group structures are complex, the values of intra-group transactions are large, and intellectual property licences and intra-group financing are the standard, not the exception. The entry into force of the JPK CIT further shortens the distance between filing a return and its verification.

Why are these areas at the top of the tax authorities’ list? There are several reasons. Above all, they concern large (often multi-million) amounts of payments made. It is also not without significance that the payments made are not so-called one-offs. Quite the contrary – group payments are made annually. If the authority verifies and assesses additional tax for one year, it can relatively “easily” transfer those findings to the settlements for the remaining open settlement periods.

Another reason is that, both in the area of WHT and TP, the provisions use highly imprecise, open-ended concepts. Which price is genuinely at arm’s length, who is the beneficial recipient, which services are similar – these are questions to which there are very often no black-and-white answers. And if that is so, they are susceptible to assessment and interpretation, and therefore also to challenge during an audit.

There is no closed list of documents that the authority may demand. The scope follows from which condition for the preference has to be demonstrated. In the case of holding structures, the material usually includes registration documents and the ownership structure, agreements and documentation of the flow of payments, data on the recipient’s personnel, premises and equipment, financial statements, as well as transfer pricing documentation with an analysis of functions, risks and assets.

This last element is sometimes underestimated. The local file is not a WHT document, but it describes the same circumstances on which the assessment of the recipient’s status is based. Any discrepancy between its content and the arguments presented in the withholding tax case is of evidentiary significance.

ALTO specialises in conducting such proceedings. We represent companies in transfer pricing and withholding tax audits, in proceedings for the refund of tax withheld, and in disputes at the appeal and court stage, before the voivodship administrative courts and the Supreme Administrative Court. We also prepare transfer pricing documentation, beneficial owner status analyses and applications for an opinion on the application of preferences.

FAQ

Is the PLN 2 million threshold in withholding tax the same threshold as in transfer pricing?

No, these are two separate constructions with a coinciding value. In transfer pricing, the documentation thresholds under Article 11k(2) of the CIT Act are PLN 10 million for commodity and financial transactions and PLN 2 million for service and other transactions, and they are calculated for a controlled transaction of a homogeneous nature, not for a single invoice or agreement. In withholding tax, the PLN 2 million under Article 26(2e) is the total of specified receivables paid to the same related entity in a tax year. Exceeding one threshold does not always mean exceeding the other.

What conditions have to be met in order to apply the exemption for interest and royalties?

The exemption under Article 21(3) of the CIT Act does not operate automatically. The conditions concern the status and residence of the companies in the European Union or the European Economic Area, the level of the relationship (as a rule, direct or indirect holding of at least 25 per cent of the shares), an uninterrupted two-year period of maintaining that holding, beneficial owner status, carrying on genuine business activity and not benefiting from an exemption covering all income. The Act allows for a situation in which the required period expires only after the payment has been made.

Can an opinion on the application of preferences expire before 36 months have elapsed?

Yes. In the event of a material change in the factual circumstances affecting the fulfilment of the conditions for the preference, the applicant has 14 days to inform the authority, counted from the day on which it learned of the change or, exercising due diligence, should have learned of it (Article 26b(8) of the CIT Act). If you report the change within the time limit, the opinion expires on the last day of the month following the month in which that time limit elapsed. If you do not report it, the opinion expires as early as the day on which the taxpayer ceased to meet the conditions.

The Ministry of Finance is at the same time planning to extend the validity period of the opinion on the application of preferences to 5 years. The status of the legislative work on this act needs to be monitored.

Who is liable for withholding tax not withheld by the Polish company?

The payer is liable for tax not withheld, or withheld and not remitted (Article 30 of the Tax Ordinance). Fiscal penal liability operates separately: Article 78 of the Fiscal Penal Code concerns failure to withhold tax or withholding it in an amount lower than that due, and Article 77 concerns tax withheld but not remitted on time. Under Article 9 § 3 of that code, liability may also attach to a person who in fact deals with the economic, in particular financial, affairs of the company.

This material is of an informational nature and does not constitute tax advice; the application of the principles described requires an analysis of the specific factual circumstances.

Sources

Legislation

• Act of 15 February 1992 on Corporate Income Tax: Article 4a(29), Article 11a(1)(4) and (2), Article 11c, Article 11e, Article 11g, Article 11k(2), Article 11n(1), Article 11q(1), Article 11t(1), Article 15c, Article 21(1), (3) and (7), Article 22(1) and (4), Article 22c, Article 24a(18), Article 26(1), (2e) and (7a), Article 26b, Article 28b
• Act of 29 August 1997 – Tax Ordinance: Article 14a § 1(2), Article 14n § 4(1), Article 30
• Act of 10 September 1999 – Fiscal Penal Code: Article 9 § 3, Article 77, Article 78

Case law

• Supreme Administrative Court, judgment of 5 July 2016, II FSK 2369/15
• Supreme Administrative Court, judgment of 6 October 2023, II FSK 1333/22
• Supreme Administrative Court, judgment of 6 May 2025, II FSK 1082/22
• CJEU, Grand Chamber judgments of 26 February 2019, the Danish cases: C-115/16, C-116/16, C-117/16, C-118/16, C-119/16, C-299/16

Individual tax rulings

• Director of the National Revenue Information Service, ruling of 3 September 2020, 0111-KDIB1-2.4010.220.2020.4.BG
• Director of the National Revenue Information Service, ruling of 5 August 2022, 0111-KDIB1-2.4010.301.2022.2.ANK

Official materials and industry standards

• Tax explanations of the Minister of Finance of 3 July 2025 concerning the application of the beneficial owner clause for withholding tax purposes, published on 9 July 2025
• Announcement of the Minister of Finance and Economy of 10 December 2025 on the type of base interest rate and margin for transfer pricing purposes, M.P. 2025 item 1249
• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, Chapter VI