The Ministry of Finance is actively working towards finalising the guidelines on withholding tax. The document is expected to be released soon and will be of particular importance for entities making and receiving payments subject to WHT in Poland. Compliance by the taxpayer or remitter with the guidelines provides protection under Articles 14k – 14m of the Tax Ordinance (covering e.g. assessment of tax underpaid/not withheld or initiating fiscal penal control).
The final guidelines on how to interpret the regulations on withholding tax will also influence the positions adopted by tax authorities and potentially administrative courts.
The new draft is currently in the phase of internal consultations within withholding tax task force, which includes tax experts from various organisations. It is assumed that the final guidelines will cover the most problematic issues concerning withholding tax, such as the definition of the beneficial owner or the possibility of applying the look-through approach.
Works on the WHT guidelines are ongoing since 2019, when the first draft was published. The initial document contained i.a., a general explanation of the concepts regarding the withholding tax collection that were introduced to the PIT and CIT acts in January 2019 (i.e. pay and refund mechanism), as well as a discussion of the requirement for due diligence. In 2023, a new, entirely different draft of explanations on WHT was published, focusing on the beneficial owner requirement and introducing, among other things, the term "income administrator". Neither of the two published drafts was finalised into binding tax guidelines.
It seems that the third set of guidelines will largely continue the considerations on the beneficial owner requirement found in the 2023 draft. From a market perspective, there is a particular expectation for confirmation that the asset-personal substrate required to meet the premise of conducting genuine economic activity is lower for companies engaged in financial activities than it is for operational companies. This point is of particular importance for numerous holding companies, which often struggle to demonstrate compliance with the beneficial owner conditions and/or substance requirements. Additionally, the Ministry of Finance plans to address the issue of substance borrowing within the group, which is particularly significant for capital groups that own several companies using shared assets within one country.
The new guidelines are also expected to include broader comments and examples concerning the possible application of the look-through approach. These will serve as a basis for interpretation regarding the possibility of applying preferences in withholding tax at the level of an entity other than the direct recipient of the payment. Given that this concept is commonly used by tax authorities and administrative courts based on rules developed in international tax law, there is a need for a comprehensive description of this issue in a document that is binding for taxpayers and remitters.
We hope that the final tax explanations on WHT will be published soon and will serve as a useful tool in applying these complex regulations.
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