On July 9, 2025, the Ministry of Finance published the final version of the explanations concerning the application of the beneficial owner clause in the context of withholding tax (“WHT”). The document is particularly important for entities making and receiving payments subject to WHT, because according to the Tax Ordinance, compliance by the taxpayer or payer with the tax explanations grants special protection.
What exactly do the published explanations contain?
1. Explanations regarding the understanding of the definition of the beneficial owner
Expelnations specify the understanding of the status of the beneficial owner as a condition for applying preferences in WHT. They refer to three criteria from the CIT Act, which must be met for an entity to be recognized as a beneficial owner, namely:
- receiving payments for one's own benefit,
- no obligation to transfer all or part of the payments to another entity,
- conducting actual business activity.
The explanations indicate that the first two prerequisites should be considered together and understood as the necessity for the recipient to have economic control over a given payment. They also describe example situations that may raise doubts regarding the recipient's possession of such economic control, e.g., realizing small margins, transferring received payments to another entity in a short period, or the lack of risk associated with the activity.
Regarding the requirement of conducting genuine business activity, the explanations indicate that an entity that does not possess its own resources enabling it to conduct such activity cannot meet this condition. In this context, according to the explanations, economic control over a given payment should be examined considering the actual capacity to exercise such control (including human, informational, or infrastructural resources).
2. The scope of applying the beneficial owner requirement
The requirement of the beneficial owner applies according to the explanations only to passive payments. This means that in the case of intangible services (e.g., advertising or consulting services), the payer is not obligated to verify the condition of the beneficial owner. At the same time, according to the explanations, which in this part remain controversial, the beneficial owner condition must apply both to participation exemptions provided for in the CIT Act (implementing Parent-Subsidiary and Interest-Royalties Directives) as well as to preferences resulting from double taxation agreements (“DTA”), regardless of whether the relevant provisions literally indicate such a condition.
In particular, in light of the explanations, the exemption of dividends from WHT under Parent-Subsidiary Directive can apply only if their actual recipient is a company from the European Union (“EU”). At the same time, the explanations indicate that in cases where the dividend is ultimately paid outside the EU territory, but WHT is withheld on the payment outside the EU, it is not necessary to examine who is the beneficial owner. At the same time, they mention that the formal obligations of the remitter do not change. The understanding of this statement requires further analysis.
3. Explanation of the requirements regarding the remitter's due diligence
The explanations take a rather strict approach to the scope of the remitter's duties when making payments to related entities. They indicate that in such a situation, the remitter is obliged to investigate all (sic!) circumstances that result in qualifying the entity as the beneficial owner. They emphasize that obtaining statements and certificates is not sufficient in this regard.
In the case of making payments to unrelated entities, the scope of required verification is smaller. It seems that in this regard, the remitter may primarily rely on the residence certificate and the taxpayer's statement.
Certain simplifications have also been provided for the duties of the so-called technical remitter (i.e., an entity paying dividends or interest on securities recorded in securities accounts or omnibus accounts) and the so-called collective management organizations for copyright and related rights. Simplifications in this area arise from the particular function of both categories of entities and include a specific list of documents and statements required to demonstrate due diligence.
4. Shared personality-asset substrate
The explanations indicate the possibility of considering resources made available by other companies in the group when assessing whether the payment recipient possesses the required asset-personnel substrate. In particular, for directive exemptions, the explanations suggest that resources available within the EU may be considered, while for applying treaty preferences, resources located in the country with which we have the agreement (i.e., exclusively within one jurisdiction) may be considered.
The shared personnel substrate can only be considered in relation to the entity receiving the payment. Therefore, this concept does not seem to apply in the case of the look-through approach described later.
5. Look-through concept
The explanations allow for the application of the so-called look-through concept to some extent, emphasizing that its application is not an obligation for the payer or the tax authority (we understand this as its application occurs at the request of the party). It allows, in certain cases, if the direct recipient of the payment is not its beneficial owner, for the application of preferences to the recipient to whom the payment is transferred, provided that this recipient has the attributes of a beneficial owner concerning the payment transferred to them.
The explanations detail the conditions under which the look-through concept can be applied. In this context, they require, among other things, that there is a categorical identity of the payment being transferred (for example, this condition will not be met if the interest collected by the recipient is paid out as a dividend to another entity) and that the scheme of the payments transferred is not characterized by artificiality.
Importantly, the look-through concept can only be applied if, at the time of payment, it is known that the payment will be transferred to the beneficial owner. In a situation where the payer does not have such knowledge, they may, in light of the explanations, refer to the concept of an "extended scope of entity examination of the beneficial owner condition" provided that:
1) circumstances exist enabling a third party to demand from the entity that received the payment to pass it on (i.e., when the entity receiving the payment is not its actual recipient due to the entitlement of a third party to receive the payment);
2) a third party can independently decide on the allocation of a given payment and therefore has influence on the manner the payment is utilized by the entity for whom the payment was made and conducts actual business activity in relation to this payment.
6. Beneficial owner and abuse of law
The guidelines essentially leave out the scope of identifying and the effects of law abuse. In numerous parts, the Ministry of Finance reminds that in the event of identifying law abuse, the authority can apply anti-abuse regulations.
7. The significance of guidelines and their protective power
Tax explanations provide protection similar to that resulting from individual interpretations. However, this protection is formally granted only with respect to events that occur after their issuance. Compliance by the taxpayer with the explanations cannot be detrimental to him. In particular, even if they are not considered during the case proceedings, there is an exemption from the obligation to pay the tax as a result of compliance with the explanations. In such cases, there is also no threat of fiscal penal liability.
The assessment of how much in practice the explanations will guarantee actual protection to taxpayers due to the fact that they, to some extent, use evaluative expressions, will only be possible in hindsight.
If you would like to discuss how the published explanations affect your company's situation, we are at your disposal.
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