Secure settlement of the withholding tax – opinion on preferential rate applicability
The changes made to tax legislation, known as the Polish Deal, have already been published in the Journal of Laws (Item 2105).
Therefore, we would like to draw your attention to the possible steps you may take to increase the security of the withholding tax settlement and enhance the effectiveness of cash flow in capital groups.
From the start of the new year, the withholding tax collection on high-value payments, i.e. payments exceeding PLN 2 million during a tax year to a single entity, will become mandatory (pay & refund mechanism).
The scope of the mechanism was limited to:
- specific types of payments – passive payments such as dividends, interest or royalties,
- made to foreign related enterprises.
One of the ways not to collect the withholding tax on said payments is to get an opinion on applicability of preferential treatment. The opinion can be obtained on the basis of regulations which are in force already now (opinion on applicability of an exemption), but the scope of the opinion will ne extended from the new year.
Same as now, the opinion may confirm that, when making payments to foreign enterprises, a Polish remitter may apply exemptions from collection of the withholding tax provided for in the CIT Act which are based on the EU Directives. Additionally, starting from next year, the opinion may confirm that the Polish remitter may apply a preferential rate of the tax or the exemption provided for in the double taxation avoidance agreements. Extension of the scope of the opinion may be of importance in case of payments made e.g. to the US or the UK.
A request for an opinion on applicability of the exemption may be filed by the taxpayer or the remitter (under certain conditions). The opinion is valid for 3 years, the fee on the request is PLN 2 thousand.
Given the tax risks involved in the area of withholding tax, such as the remitter’s liability, the liability under the fiscal crime law, an additional obligation, we consider it reasonable to apply for the opinion on applicability of the exemptions already this year, or an opinion on applicability of a preferential rate next year. If Polish enterprises plan to pay large amounts as e.g. dividends at the start of next year, we recommend that this issue be analysed as soon as possible. If no opinion was issued with respect to such payments, the tax will have to be collected, and subsequently a request for its refund will have to be filed (provided that the premises of the refund are satisfied), which may mean a long period of waiting for the tax authority’s decision.
You are welcome to contact us if you would like to know more about the opinion on applicability of a preferential rate or you need support in obtaining it.