Exemption from WHT
Significant changes in the practice of applying WHT exemption regulations
Nowadays we are witnessing a significant evolution in the application of WHT exemption regulations. The catalog of circumstances that should be taken into account by payers and taxpayers has expanded.
Withholding tax (WHT) is an income tax that the payer (company) should collect on income earned in Poland by tax non-residents. This means that its practical knowledge is important for any company that conducts transactions with foreign entities. A whole range of receivables are subject to it, including advisory services, copyrights and related rights, interest and others. Crucially, exemptions are also possible in this tax, but this should be done with great care.
How ALTO can help your company?
- We conduct tax reviews for taxpayers and Polish WHT tax remitters to identify potential risks associated with settlements.
- We offer support during proceedings for the refund of WHT, proceedings related to the verification of the compliance of a declaration on the application of WHT preferences, and proceedings concerning the request for an opinion on the application of exemption.
- We develop due diligence procedures in the context of WHT settlements and providing ongoing support in case of uncertainties.
Any questions?
Within tax proceedings focused on the right to apply withholding tax exemptions, the Polish tax authority pays particular attention to:
- The fact whether the payment (such as dividends, interest, licensing fees, etc.) is subject to taxation in the taxpayer’s country of residence – the Polish tax authority assesses whether the payment can be taxed in any jurisdiction at all. It means that in the case of applying the ‘participation exemption’ relief, there is an almost certain refusal to grant withholding tax exemption in Poland.
- A thorough verification of the beneficial owner status of the receivables – the tax authority carefully assesses whether the payment indeed represents an exclusive benefit for the receiving entity or if the receivable is being transferred to other entities (e.g., through the distribution of further dividends, charges for intangible services or transfers in the form of other types of hidden dividends).
- Payer’s duty of due diligence– the Polish tax authority examines information regarding the taxpayer’s registered office, assets, number of employees and data from tax declarations for previous years, as well as information from financial statements; in the absence of sufficient business substance, suspicions arise regarding the artificiality of the ownership structure. It is also crucial whether the taxpayer incurs any tax to be paid in their country of residence.
- Whether there is or may be an abuse of law in a given case, taking into account all the aforementioned facts.
What should you know about the WHT settlement process?
WHT settlement in Poland occurs in two modes: pay and refund proceeding or by submitting a declaration under the penalty of criminal liability, confirming the fulfillment of conditions for applying WHT exemption or treaty preferences.
Remember! It is also possible to request an opinion from the tax authority on the possibility of applying WHT preferences (a process of at least 6 months based on evidentiary-interpretative proceedings).
In each of these modes, a problem may arise in the event of challenging the right to apply the exemption:
- the authority may refuse to refund the tax collected by the tax remitter,
- the declaration concerning the right to exemption may be challenged, resulting in a tax arrears and criminal liability of tax remitter’s board members,
- the proceedings regarding the opinion can last for months, significantly delaying the moment of payment of receivables to the parent company.