New withholding tax (WHT) rules
Clarifications provided by the Ministry of Finance – what to pay attention to regarding withholding tax (WHT) before 01 July 2019
During the consultations held on 04 February 2019, the Ministry of Finance (further called: MOF) started clarifying the doubts raised so far regarding new provisions on the so-called withholding tax (WHT). The general conclusion is that various circles voice a great number of concerns, and MOF does not yet have a consensus view on many issues. Nonetheless, MOF declared that it would publish draft clarifications at the beginning of March, to be followed by further consultations in writing the final version of which would be announced in April.
New withholding tax regulations
The coming into force of new withholding tax rules (i.e. regulations introducing the new principle of withholding and potential subsequent refund of WHT on payments above the annual limit of PLN 2 million made to a given foreign entity) was to be postponed until 30 June 2019, and in some cases even until 31 December 2019.
However, during Monday's consultations, the representatives of MOF stressed that the postponement concerns only the entry into force of the technical obligation to collect and pay the tax (or submit the relevant declaration), whereas the new extended formal requirements to use the withholding tax exemption or reduced WHT rates already apply to payments made after 01 January 2019.
Due diligence and WHT
First of all, MOF confirmed that the aforesaid postponement of certain new WHT regulations does not release taxpayers from the duty to exercise "due diligence" when verifying the grounds for applying exemptions or reduced rates to payments made after 01 January 2019. In other words, from the very beginning of the year taxpayers are under an obligation to demonstrate and document that they exercised "due diligence" before withholding tax on payments made to a foreign entity.
Moreover, MOF also pointed out that the requirement to identify the beneficial owner of the sums due (according to the new extended definition) already applies and it may, in addition to interest or royalty payments, in certain situations also concern payments of dividends or remuneration for intangible services. In practice, this may prove to be a significant problem in the case of payments to holding companies, intra-group financing entities, cost sharing payments or even payments to shared service centres situated outside Poland.
In view of these guidelines, entities making payments abroad should review such payments as soon as possible (without waiting until 1 July) from the perspective of the impact of the new withholding tax regulations on their tax position. It is also recommended that such entities adapt their procedures to the new documentation obligations, in particular those concerning the obligation to proceed with "due diligence", prior to making the payments.
Another important piece of information is that companies with the so-called shifted tax year should not expect to delay the application of the new withholding tax regulations until their next tax year, as opposed to what was suggested in the draft regulations.
Taxpayers that consider submitting a request for an opinion on the legitimacy of applying the withholding tax exemption in order to secure their tax policy should not wait too long either. The relevant procedure will last about 6 months, and in practice, if the tax authorities are deluged with such requests, it may take even longer. What is more, entities that plan to make significant payments abroad (e.g. dividends) in the second half of the year should also consider applying for an opinion of this kind right away.
The new WHT regulations have been publicly discussed for several weeks now. Unfortunately, even after the first clarifications of MOF, doubts are still growing. That is why we will do our best to keep you posted about the most important developments in the area (including those resulting from consultations with the Ministry of Finance) right until 01 July 2019.