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Withholding tax deferred for the fifth time

2021-01-29

On 30 December 30, 2020, the regulations of the Minister of Finance, Funds and Regional Policy amending the regulations on the exclusion or restriction of the application of Art. 26 (2e) of the Corporate Income Tax Act and Art. 41 (12) of the Personal Income Tax Act were published in the in the Journal of Laws

It will be recalled that in accordance with the regulations, which have been in force since January 1, 2019, if the total amount of interest, royalties and intangible services paid to a non-resident, as well as dividends paid, exceeds PLN 2,000,000 during the tax year, remitters are obliged to calculate and pay a flat-rate income tax (withholding tax, WHT) without the possibility of benefiting from a reduced rate or exemption or non-collection of tax resulting from special provisions or double tax treaties (DTT).

Only after the tax has been paid in the whole amount, the taxpayer or remitter – if they have borne the economic burden of the tax – are entitled to apply for a refund. Thus, the hitherto applicable principle of relief at source has been replaced with the mechanism of refund on request (tax refund).

However, the amendment vested the Ministry of Finance with powers to defer the application of the provisions in question, which were immediately exercised. Even before the above-mentioned regulation entered into force, its application had been postponed until June 30, 2019. A subsequent amendment to the regulation extended that deadline until December 31, 2019, but only in the scope of corporate income tax. At the same time, in the period from July 1, 2019 to December 31, 2019 PIT remitters  were subject to a limit of PLN 2 000 000. Subsequent amending regulations concerned both CIT and PIT and deferred the application of the new regulations until June 30, 2020, December 31, 2020 and June 30, 2021, respectively.

The limitations do not apply if the payer submits a declaration that he possesses the documents required for the application of a reduced rate or exemption, or for the tax not to be collected at all under relevant regulations or a DTT, and has verified whether the conditions for their respective application are met.  

Another way of avoiding the tax collection and remittance is by obtaining a so-called ‘Opinion on the application of exemption’ issued by the relevant tax authority. A request for its issuance can be submitted by both the taxpayer and remitter who paid the tax out of its own funds.

Currently, the Ministry of Finance are announcing another amendment to the provisions on WHT. In accordance with the announcements published on the Ministry’s website, the works will be completed this year. However, it is hard to speculate what direction the changes will take.

It is worth noting that although the regulations concerning the PLN 2 000 000 limit have been systematically deferred, the remaining provisions concerning withholding tax, which came into force on January 1, 2019, have been in force ever since and apply regardless of the amount of the payments made. This concerns in particular the obligation to exercise due diligence and to verify the status of the actual payee/beneficiary, to which remitters should pay particular attention.

 

Wojciech Jasiński, Tax Consultant, ATA Tax Sp. z o.o.

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