Please find below a summary of the reform’s key presented areas and the likely “timeline” of the process.
Likely “timeline” for WHT reform
1. The draft changes of provisions are likely to be made publicly available shortly (as it was said “in the next few weeks”). The planned reform was originally intended to be published in the first half of 2020, but due to COVID-19, it was suspended;
2. No declaration has been made by the MF on a further postponement of the application of the “Pay and refund” mechanism (e.g. by another six months).
3. MF also referred to the issue of binding clarifications on WHT regime (the draft was presented in June 2019 but was not yet be finalized) – these are likely to be published in mid-2021 and will already refer to the new legislation;
Details of the reform and its key assumptions
1. Narrowing of the scope of application of the “Pay and refund” mechanism
- MF proposed that the “Pay and refund” mechanism should apply only to passive payments (i.e. in particular interest, royalties and dividends – thus without payments for so-called intangible services). The payments’ threshold activating “pay and refund” mechanism will likely remain the same – it will cover the payments on the excess of PLN 2 m per tax payer / per year.
- The WHT return mechanism would be limited to related entities only – the MF pointed to a large disproportion in the possibility to collect documents and information necessary for application of WHT relief in case of non-related entities. What is important, for the condition of being a related party, the element of “exerting significant influence” within the meaning of the transfer pricing regulations, will be not examined.
2. Changes in the definition of beneficial owner
- There might be a slight changes to the definition of the wording of the beneficial ownership clause – unfortunately, the condition of the so called” genuine business activity” will probably remain in the definition of BO.
3. Dividend payments between Polish residents
- Payments of such dividends would be excluded from the “Pay and refund” mechanism.
4. Clarification of the “due diligence” requirements
- The current premises that impact the tax remitter’s scope of due diligence - nature and scale of his business activity – are about to be supplemented by the premise of association with the taxpayer. This means, that a different standard of due diligence might be expected, to payments made to a non-related taxpayer.
5. Extension of the scope of the security opinion on the application of the WHT exemption and its validity
- A safeguard opinion against the need to apply the “Pay and refund” mechanism may also cover the WHT preferences based on the double tax treaties (currently it is only available for the payments that may be subject to EU Directives based exemption). Moreover the validity (36 months) of the opinions that are already obtained, will start to run from the entry into force of the new legislation.
6. Change in the way of signing the statement by the remitter and scope of its penal responsibility
- MF indicated that it would be possible to sign the remitter’s statement enabling application of WHT relief, by the head of unit, in accordance with the representation – it seems however that the possibility to sign the statement by the proxy will remain excluded.
- There might be also certain mitigating changes with respect to scope of penal responsibility of the tax remitter if the mentioned statement proves false.
During the meeting, there were also a number of questions concerning, among others, the application of the concepts of “look through approach” and “consolidated substance”, clarifying that the concept of the beneficial owner does not apply in the case of Parent-Subsidiary based WHT exemption for dividends. Due to meetings’ time constrains, the questions were not directly referred to by the MF’s representatives.