Poland: Updated proposals for changes to withholding tax collection rules

Narrowing of the scope of application for the remittance and refund mechanism

Narrowing of the scope of application for the remittance and refund mechanism

Amendments pursuant to the “Polish Deal” propose changes to the withholding tax collection provisions, including a narrowing of the scope of application for the remittance and refund mechanism regarding passive payments (interest, royalties, and dividends but not payments for intangible services) made to related entities that are not Polish tax residents.

According to the proposal—expected to be effective 1 January 2022—remitters paying interest, royalties, and dividends to a single taxpayer exceeding PLN 2 million in a tax year would be required to collect withholding tax at the standard rate of 20% (or 19% depending on the type of payment made), and only when the tax is collected may foreign taxpayers or the remitters themselves (if they bore the economic burden of tax) apply for a refund of the collected withholding tax.

Consequently, payments for intangible services, having been removed from the scope of the pay and refund mechanism, would not be included in the PLN 2 million cap, above which the mechanism must be applied.

Further amendments concern the definition of the beneficial owner. Whether the entity (to which the receivables are paid) conducts an actual business activity is to be assessed on a similar basis as with regard to the operations of controlled foreign corporations (CFCs). Under the amendments, however, the reference to CFCs would be removed and replaced by a statement that the assessment in terms of conducting actual business activity would take into consideration the size and character of the activities conducted by the recipient in the scope of the receivable.

Importantly, under the amendments, the scope of the opinion confirming the taxpayer’s entitlement to apply a withholding tax exemption would be extended to cover preferential treatment (exemption or reduced rates) provided for in double taxation treaties. Consequently, the name of the opinion would be changed to “the opinion on the possibility of application of preferential tax treatment.” 

KPMG observation

The changes to the provisions regarding the withholding tax collection method were initially planned to be effective 1 January 2019.
 

Read a September 2021 report [PDF 311 KB] prepared by the KPMG member firm in Poland

 

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