The amendment to the provisions of the Polish Personal and Corporate Income Tax Acts has brought a number of obligations imposed on entities making payments such as, among others, dividends, interest, royalties and fees for certain intangible services. These responsibilities include verification if a given payment qualifies for the exemption or application of preferential withholding tax rates. In the case of tax remitters affected by the provisions of the Corporate Income Tax Act, the entry into force of some provisions has been postponed once again – this time until January 1, 2020.
How has it been so far?
Until now, entities making payments to foreign recipients, including dividends, interest, royalties and remuneration for certain intangible services, acting as tax remitters, could not have collected withholding tax in connection with exemption under domestic law or double tax treaties or collect tax at preferential rates resulting therefrom only after obtaining from recipients valid tax residency certificates. These are certificates of the place of a taxpayer’s place of residence or registered office for tax purposes issued by a competent tax administration authority.
New rules – payments up to PLN 2 million in a given year
The new rules change the rules of the game. If receivables qualifying to the categories giving rise to the withholding tax obligation, paid to the same recipient, do not exceed an amount of PLN 2m in a given year, a tax remitter will be obliged to collect withholding tax at a rate provided for in the Polish regulations (currently 20 or 19 percent in the case of dividends), bypassing e.g. provisions of double tax treaties in force, even if these treaties provide for more favorable tax rates or indicate that receivables are not subject to tax in Poland. However, a tax remitter may not withhold tax or apply a more favorable rate if they receive a tax residency certificate from a recipient and at least a statement on the status of beneficial owner, ergo receiving a payment for their own benefit and deciding on its intended use, not functioning e.g. as an intermediary or trustee and conducting real economic activity.
On the other hand, if receivables paid to the same entity exceed an amount of PLN 2m in a given year, a tax remitter will have two options. According to the first of these, they will have to collect (and pay to a tax office’s account) withholding tax on the surplus over an amount of PLN 2m on the terms provided for in Polish law. The second option allows a tax remitter to act as in the case of payments not exceeding PLN 2m in a given year, provided that an additional statement is submitted. This statement should include a declaration that a tax remitter has documents required by law not to collect tax (in particular a tax residency certificate) and after verification with due diligence they have no knowledge justifying the supposition that there are circumstances excluding the possibility of not collecting tax or applying a more favorable rate resulting from double tax treaties.
Such statement by a tax remitter is optional. In the absence of it, they will be required to collect withholding tax on the excess over PLN 2m bypassing provisions of domestic law or double tax treaties. However, this does not exclude the possibility of obtaining later a tax refund at the request of a recipient (taxpayer) or tax remitter, if the latter paid tax from their own funds and incurred the economic burden thereof. The tax refund will be preceded by verification by the tax authority of the legitimacy of applying the exemption or a more favorable tax rate.
In the case of improper collection or lack of payment of withholding tax on a tax office’s account, a tax remitter is responsible for this tax with all their property and in the event of irregularities, they are obliged to pay a correct amount of tax together with interest for delay. Moreover, if a declaration made by a tax remitter turns out to be untrue, an additional 10 or 20 percent tax liability may be imposed on them, calculated on an amount due for which tax remitter has not collected tax or applied a more favorable rate. Submission of a false statement may also result in a fine of up to 720 daily rates, imprisonment or both, together, and in cases of minor importance, the fine itself for a tax offense.
In addition, if the amount of PLN 2m is exceeded in a given year, a tax remitter may apply withholding tax exemptions resulting from domestic regulations implementing the so-called Parent-Subsidiary Directive and the Interest and Royalty Payments Directive (payments of, among others, dividends, interest and royalties between entities meeting additional participation requirements) only upon receipt of a valid opinion on the application of the exemption by the tax authority.
Deferral of some provisions
In the case of tax remitters who are natural persons conducting business activity, the new rules are fully applicable from July 1, 2019. However, in relation to tax remitters covered by the provisions of the Polish Corporate Income Tax Act, the application of some provisions – in the scope of the obligation to collect tax bypassing provisions set forth in double tax treaties or other special provisions – has been postponed again. The originally deferred provisions were to apply from July 1, 2019. This time the rules are supposed to enter into force on January 1, 2020.
Notwithstanding the foregoing, from January 1, 2019, all tax remitters are required to carry out verifications with due diligence when determining if a given payment qualifies for not collecting withholding tax, in accordance with the provisions of domestic law or double tax treaties, or for collecting tax at a more favorable rate. Due diligence procedures require verification of a recipient’s status in terms of whether they meet the conditions allowing to recognize them as a beneficial owner.
By Tomasz Piejak & Wojciech Jaranowski