Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

April 22, 2020
2020-5625

Poland to impose withholding tax on cross-border payments as of 1 July 2020

Executive summary

Poland’s withholding tax reform, involving a pay-and-refund procedure, unless deferred, will enter into force on 1 July 2020. In practice, this means that cross-border payments that have to date benefited from exemptions or tax treaty-based withholding tax rates will, as a rule, become subject to a 19% or 20% withholding tax. Imposition of the new withholding tax rates will only be suspended if certain measures are taken (see Actions needed below).

Detailed discussion

The Polish withholding tax system to date has been based on a ”relief at source” approach. This has resulted in many payments being subject to a full withholding tax exemption or preferential tax rates based on tax treaties concluded by Poland. The relief has been applied upon a payment if certain conditions were met (mostly formal conditions related to certificates of tax residence and statements from the receiving party).

The withholding tax reform in Poland has been partly implemented as of 1 January 2019 and now:

  • A new, more rigid, definition of the beneficial owner applies
  • Polish tax remitters are explicitly obliged to exercise due diligence to determine if the payment recipient is eligible to benefit from relief at source

However, the most significant change under the withholding tax reform has been deferred and is about to come into effect in two months (unless the deferral is extended). As of 1 July 2020, Polish tax remitters making cross-border payments (dividends, interest, royalty payments as well as fees for various services), will be required to collect withholding tax at 19% (dividends) or 20% (other payments), regardless of relief available under a tax treaty or a domestic exemption based on the European Union (EU) directives, if payments exceed PLN2 million annually (approx. US$500k).

Depending on the case, the payer or foreign recipient will be allowed (if fulfillment of strict conditions is proved) to apply for a refund of either full amount of the tax paid or the excess over an applicable tax treaty rate. The refund process may take six months, leading to a substantial reduction of cash flows.

There will be two exceptions from the above default scenario:

  • A Polish payer may provide the Polish tax authorities with a statement signed by all of its board members in which they confirm that the recipient meets all conditions for relief at source (including the beneficial owner and real business activity tests). If the statement were to be successfully challenged by the tax authorities at a later date, the boardmembers would face severe personal liability.
  • Application for an opinion issued by the tax office confirming that a withholding tax exemption applies. The opinion should be issued within six months. This measure is available only for relief under EU-Directive rules and is not available for relief claimed based on tax treaties.

 

Actions needed

Considering the stringent new beneficial owner definition and real business activity test, the application for an opinion from the tax office or application for a tax refund would require diligent preparation. Businesses considering a statement by the board members of the Polish payer would also need to take immediate action to limit the personal risk of such individuals.

Given that both procedures would take approximately six months, multinational groups should take prompt action to prepare their respective approach. Otherwise, 19% or 20% of payments from Poland will be collected by the tax authorities, temporarily or permanently.

In light of the situation related to COVID-19, where governments may need to focus on fiscal revenue needs, exceptional scrutiny by the tax authorities is likely to become a new reality. Therefore, appropriate and timely preparation is essential.

_____________________________________________________________________________________________

For additional information with respect to this Alert, please contact the following:

EY Doradztwo Podatkowe Krupa sp. k., Warsaw
EY Doradztwo Podatkowe Krupa sp. k., Wroclaw
Ernst & Young LLP (United States), Polish Tax Desk, New York

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more