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29 August 2018 Poland's 2019 tax reform proposal includes strict withholding tax regime likely to impact international groups On 24 August 2018, Poland's Ministry of Finance released a draft bill introducing significant changes to the tax law as of 2019. One of the key areas of focus under the draft bill is collection of withholding taxes (WHT). Proposed WHT changes will significantly reshape the current practice of applying exemptions and treaty-based rates for dividend, interest and royalty payments as well as for certain services. The draft bill proposes measures with no precedence in Poland, such as:
According to the draft there would be two regimes depending on whether the total amount of dividend, interest, and royalty payments and payments for certain services (qualified payments) paid to a foreign taxpayer in one tax year exceed a PLN2m equivalent (approx. US$550k). A new domestic definition of "beneficial owner" would also raise the bar for taxpayers through specific requirements such as "carrying out real business activity." The tax remitter would be obliged to verify whether these conditions were met and failure to do so will result in the tax remitter's responsibility for unpaid tax. If the annual total amount of qualified payments does not exceed PLN2m, generally the formal conditions required for application of a treaty rate or an exemption remain the same (with the exception of a new, more stringent beneficial owner definition). However, it is now explicitly stated that when determining whether a treaty rate or exemption can apply, the tax remitter is obliged to assure due diligence, which should take into account the nature and scale of the recipient's business activity. In cases where qualified payments to a single recipient exceed PLN2m annually, the general rule would be that a payer should remit WHT on the excess over PLN2m annually at standard rates (19% for dividends and 20% for interest, royalty and service payments). In such case, tax treaty rates or exemptions, as well as those provided for by domestic provisions implementing the Parent-Subsidiary Directive and Interest-Royalties Directive, must be disregarded and standard rates should apply. While the draft bill is still not clear in certain aspects, it appears that, there may be two exceptions from this rule:
The tax remitter would be allowed to apply treaty rates or exemption based on domestic provisions implementing the Parent-Subsidiary Directive and Interest-Royalties Directive, if before making a payment subject to WHT, the tax remitter submits a statement to the tax office in which it confirms that:
The statement should be signed by the head of the tax remitter entity under severe personal sanctions, if it turns out that the statement was not fully in line with facts. A WHT exemption based on domestic provisions provided for dividends, interest and royalty payments could also be applied based on a specific opinion issued by a tax office upon request. Details of a request and attachments thereto will be issued by the Ministry of Finance. The opinion would not be issued if, while assessing the request, the tax office determines that general or specific anti-abuse provisions could apply to the case or that the foreign recipient does not carry out real economic activity in its country of residence. The tax office would have six months to issue an opinion and, as a rule, it would be valid for three years, unless underlying conditions change prior to this term. If neither of the above measures is applied (tax remitter's statement or a tax office's opinion), WHT has to be paid at statutory rates. In such a case, the tax could be claimed back provided that conditions were met. The refund could be claimed either by the taxpayer or tax remitter (if it incurred the economic burden of tax). The request should be accompanied by substantial documentation, including: (i) certificate of tax residence; (ii) wire transfer confirmation regarding the payments subject to WHT; (iii) agreements related thereto; (iv) taxpayer's statement regarding fulfilment of the conditions for exemption; (v) justified statement of the beneficial ownership status; and (vi) justified statement that a taxpayer carries out real economic activity that the revenue is related to. The motion should be considered by the tax office and a decision issued within six months from the day when the request was filed. However, this period can be extended by the tax office if the assessment of the request cannot be finalized within this time Since the announced measures are likely to significantly impact international groups operating in Poland, further developments in this area should be monitored and initial assessment made to take action to mitigate the potential negative impact on cash flow and financing costs. Future Alerts will report on developments in this area as well as other significant changes proposed in the 2019 tax reform.
Document ID: 2018-6026 |
