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Poland: Proposed changes to withholding tax on payments for foreign-provided intangible services

Poland: Proposed changes to withholding tax on payments

The Ministry of Finance on 4 September 2020 held a pre-consultation meeting providing a preview of planned amendments to the rules regarding the withholding tax imposed on payments made to foreign providers of intangible services.

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The amended regulations are proposed to be effective beginning 1 January 2021. The draft legislation containing details of the proposed changes is expected to be made available and subject to public consultations in the coming weeks.

Currently, Polish tax remitters paying out interest, dividends, royalties or payments for certain intangible services to foreign taxpayers in the amounts exceeding PLN 2 million annually (per a single recipient/taxpayer) are required to collect withholding tax (at the standard rate of 20% or 19%) and only once collected, could foreign taxpayers or the remitters themselves (if they bore the economic burden of tax) apply for a refund of the withholding tax (the “pay and refund” mechanism).

  • It would be proposed that the pay and refund mechanism would apply only to “passive” income payments (interest, dividends, and royalties) made between related entities. Thus, payments made in consideration for services (regardless of the nature of relationship between the remitter and the taxpayer) and other payments made between unrelated entities (including “passive” income payments) would be excluded from the scope of the new withholding tax collection mechanism.
  • However, there would continue to be an obligation to exercise due diligence, regardless of the amount paid out and the nature of relationship between the payer and the service provider. There would be amendments to the definition of a “beneficial owner,” and the due diligence requirement would require verification of the beneficial owner status of the payment's recipient, regardless of the amount involved.
  • The concept of “exercising significant influence” within the meaning of transfer pricing provisions would not be used for the assessment of the relationship between entities.
  • The pay and refund mechanism would not be used for dividends (and other income from shares in profits of legal persons) paid out between Polish entities.
  • It is also proposed that withholding tax clearance opinion letters would also apply to withholding tax preferences resulting from application of provisions of income tax treaties (in relation to “passive” payments to which the pay and refund mechanism would be limited). The validity period (36 months) of existing clearance opinions would continue but only from their final effective date. Thus, as a rule, clearance opinions issued before 1 January 2020 would remain valid until the end of 2023.


Read a September 2020 report [PDF 236 KB] prepared by the KPMG member firm in Poland

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