WHT in Poland 2020. How to perform due diligence?
From July 1, 2020, payers will be required to collect tax in case the payment, that is subject to WHT, made for the benefit of one taxpayer, exceeds PLN 2 million (Article 26 (item 2e) of the CIT Act). Additional procedures will be imposed on the payer:
On the other hand, since January 2019, due diligence has been introduced – this is a key element when analyzing the possibility of applying statutory exemption or a reduced WHT rate. A due diligence procedure should include a detailed routine for verifying transactions, contractors and documentation. Actions related to exercising due diligence should focus on in particular obtaining a certificate of residence (verification of the tax residence of a foreign contractor) and obtaining a beneficial owner statement (confirming the status of actual owner of paid receivables).
Obtaining a preferential rate
To obtain a preferential rate / exemption from WHT collection and to retain the due diligence, we must obtain:
Certificate of residence – what should it contain?
Certificate of residence – a draft is not precisely specified. In Poland, however, several important points are listed that should be included in order to consider a certificate correct:
• date of issue of the certificate,
• the exact address of the taxpayer’s residence / registered seat, the so-called place of residence,
• name of an authority that issued the certificate,
• purpose of issue,
• reference to the agreement on avoidance of double taxation,
• validity period of the certificate, however, if it has not been provided, the payer, while collecting the tax, takes into account the document for the next twelve months from its date of issue,
The Polish certificate of residence has a specific template in accordance with the regulation issued by the Minister of Finance and Development. Economic practice also suggests to draw up the certificate both in the native language of the contractor and in one of chosen international languages, preferably in English.
What is “beneficial owner”?
Confirmation of the beneficial owner status – in practice: obtaining a statement from the contractor. Beneficial owner – the actual owner of the receivables is an entity that:
• receives a receivables for its own benefit, including deciding by himself on its purpose and bears the economic risk of losing receivables or part thereof,
• is not an intermediary, representative, trustee or other entity obliged by law or actually to transfer all or part of receivables to another entity,
• conducts actual business activity in a country where the seat is, if receivables are recovered in connection with the conducted business activity.
Other additional documents (minimum)
- Contractor’s commercial register
- Confirmation that persons acting on its behalf are entitled to representation,
- Financial Statements
- Confirmation that it employs employees
- Confirmation that it has adequate technical and organizational facilities to conduct business
- Payer’s questions addressed to the benefitial owner (examples):
- What staff and equipment/facilities does the company have?
- Are the members of the management body / directors of the company natural persons (or other entities) performing these functions in a service way, in particular those persons who perform similar functions in other entities?
- Are documents regarding running of company’s affairs signed actually in the place (country) of its registration?
- Does the company have a place in the country of registration (together with the necessary infrastructure / service – professional staff) where decisions about the company can be made (management body meetings, meetings of board members)? Do these meetings take place in these rooms?
- Is the company’s seat / office address used by many entities simultaneously? If so, by how many entities? Are these entities related (which may justify using the same office)?
- Do the members of the management body of the Company have local (corresponding to the company’s seat) e-mail addresses / landline or business mobile phone numbers?
The key aspect of due diligence is verification of the concept of “conducting actual business activity” – proving that the contractor has an enterprise in which he actually performs business activity, does not create structures operating without reference to economic reasons, or performs his own economic functions, including those performed by the local management.
How to avoid tax collection after exceeding PLN 2 million?
There are two ways to avoid tax collection even after exceeding PLN 2 million.
|Submission of the declaration by the Polish payer||The statement should indicate that: a) he has documents required by the provisions of tax law to apply whether the tax rate, or an exemption, or non-collection of the tax resulting from special provisions or agreements on the avoidance of double taxation, b) after verification, he has no knowledge justifying the supposition that there are circumstances excluding the possibility to apply the tax rate, or an exemption, or non-collection of the tax, in particular he has no knowledge of circumstances preventing the fulfillment of conditions where the exemption and benefitial owner can be applied for.|
|IMPORTANT: • The declaration will apply to each contractor separately, • It must be submitted each time before the payment of liability is made, • It is valid for 2 months, • The declaration may be submitted only by the head of unit in electronic form. It is not allowed to make a statement by authorised plenipotentiary.|
|Obtaining the opinion of the tax authority||The application can be submitted by: a) the taxpayer (foreign entity) or b) the payer – provided that the tax is paid (paid extra) from his own funds (the payer incurs an actual economic burden of this tax – submitting the application by the payer will require including a gross-up clause in contracts) The opinion will apply only to dividends, interests, royalties and payments to related entities (Cases when it is possible to benefit from exemptions arising from the CIT Act, Article 21 par. 3 and Article 22 par. 4).|
|IMPORTANT: • The application is submitted electronically with following forms: • WH-WOP – by the payer • WH-WOZ – by the taxpayer • The opinion will be issued within 6 months and will be valid, as a rule, for 36 months from the date of issue. • The application is subject to a fee – PLN 2,000 and it must be paid within seven days from the date of submission under pain of leaving the application without investigation. • The application should include i.a.: a document confirming the fact of having a certain number of shares in the other party of a transaction, tax residence certificate, beneficial owner statement, a document confirming the fact that the recipient is subject to taxation on all income earned, in case of payments to a direct shareholder – an excerpt from the National Court Register confirming the required share in the payer’s capital, a declaration of authenticity of facts presented in the application and a declaration of compliance of documents with the originals.|
An alternative to the declaration made by the payer is request for a withholding tax refund up to the extent that the taxpayer was entitled to apply the exemption, lower WHT rate or not to collect the tax.
|Application for the tax return||Entitled to apply for a tax refund: a) Taxpayer who, in connection with recovering liability, on which the tax was collected, generates taxable income in accordance with the provisions of the Act b) Payer in case the tax is paid (paid extra) from its own funds – the payer will bear the actual economic burden of this tax (submitting the application by the payer will require including appropriate contractual provisions, i.e. the so-called gross up clause !!! *)|
|IMPORTANT: the refund will take, as a rule, six months To the tax refund application there must be attached appropriate documents to establish its validity: They include in particular: • taxpayer’s certificate of residence, • documentation regarding bank transfers or other documents indicating the method of settlement or payment transfer, which were connected with a payment of tax, • documentation regarding the obligation to pay liabilities, • taxpayer’s declaration of compliance with, in relations to the paid out liabilities, conditions that entitle to tax exemption, • taxpayer’s statement regarding the fulfillment of conditions for recognizing him as an actual owner of liabilities and in the scope of his actual business activity.|
* Gross-up clause
In the event that we are obliged to pay tax from the Company’s own funds (our contractor will receive the entire amount of liability), particular attention should be paid to whether there is a so-called gross-up clause in a contract or other documents being a basis for the transaction. The gross-up clause should contain a provision that, if under the Polish regulations or under a double taxation agreement, withholding tax should be deducted from the contractual obligations, the Company should increase the amount of the liability, in a way, that WHT charges the Company, i.e. under a contract, the Company is obliged to pay the abovementioned tax from its own funds, as well as it is obliged to bear the economic burden of this tax.
If there is no gross-up clause in a contract or other documents constituting the basis for a transaction, in the case of tax payment from the payer’s own funds, he will not be able to request a tax refund.
Would you like to know more about tax changes in 2020 in Poland? Download our brochure: https://pl.vgd.eu/en/news-timeline/
Author: Katarzyna Maruszak