Draft amendment regarding income taxes and Tax Ordinance

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Recently, a draft amendment has been published by the Ministry of Finance, including but not limited to, the Income Tax Acts and the Tax Ordinance Act. One of the proposed changes involves modification of principles to collect the so called tax at source (WHT) on domestic and cross border dividends, and also on cross border  interest, royalties and intangible services related payments. The amendment provides for some restrictions that impede application of exemptions and reduced rates to payments of WHT.

The new regulations are to come into force on  1 January 2019.

Material changes provided for in the draft include:

  • keeping the existing principles of collection of the tax in case of cross border payments not exceeding in total PLN 2,000,000 for amounts due to one taxpayer in a given fiscal year, made with respect to, among other things:
    – dividends,
    – interest,
    – royalties,
    – intangible services rendered;
  • an obligation to collect the tax in the full amount on the aforementioned payments over PLN 2,000,000, without applying any exemptions or reduced rates as provided for in double tax treaties and the CIT Act;
  • the taxpayer or tax withholding agent will be able to apply with the tax authority, through a different procedure, for a refund of the paid tax, such a procedure to include but not be limited to examining whether:
    – the actual recipient of the payments is an income tax payer in his/her country and carries out a real business activity,
    – any prerequisites exist to apply GAAR;
  • the tax refund deadline is to be 6 months and it can be extended;
  • exceptions to the obligation to collect the tax will apply only if:
    – upon the taxpayer’s request, the tax authority issues, within 6 months, an opinion on application of the WHT exemption by the taxpayer;
    – under pain of criminal responsibility, the tax withholding agent declares that they have verified the beneficial owner of the payments and have been in possession of proper documents to prove non-collection of the tax or collection of the tax in the reduced amount;
  • an additional tax obligation apart from the obligation to pay tax – if the tax withholding agent’s declaration as to the legitimacy of application of the WHT exemption turns out to be untrue,  such an additional tax obligation will be assessed in the amount of 10% of the taxable basis of the payment made, or in the double amount when the taxable basis exceeds PLN 15,000,000, or if, within the last 10 years, the tax authority imposed an additional tax obligation on the tax withholding agent.

In case of payment of dividends and other proceeds from participation in corporate profits, to domestic entities, analogous rules of collection and refund of the WHT will apply.

Let us point out that the new regulations will also apply to payments out of profits derived in 2018. Having this in mind, we would like to draw your attention to the necessity of verifying circumstances that affect the WHT exemptions and rates.

Please let us know if you have any questions.