The draft amendment of the tax law introduces changes regarding the method of settling the withholding tax (WHT). Currently it is possible to apply a preferential tax rate on payments the moment they are made. In certain circumstances, despite the right to apply the preferential rate or exemption, the taxpayer will first have to withhold tax at statutory rates and only then apply for the refund of overpaid tax.
Who will the new regulations apply to?
In principle, the new method of settling WHT will apply in a situation when the taxpayer receives a payment exceeding PLN 2m from a single taxpayer. If the PLN 2m limit is exceeded, the tax remittent will be obliged to withhold, determine and pay WHT in accordance with the rates provided for in the income tax acts. In that situation, the tax remitter doesn’t have the right to apply preferential taxation under tax treaties or acts. If the tax has been withheld, then the taxpayer (or the tax remitter, if it incurred the economic burden of tax) will be able to request a refund.
Even after the PLN 2m limit is exceeded, there are two methods to apply preferential taxation at the moment the payment is made:
- The tax remitter will file a statement (under penalty of perjury) confirming that they are in possession of documentation required under the tax law for the WHT exemption or application of a lower WHT rate. Prior to filing the statement, which as a rule shall be submitted by the head of the tax remitter entity, it is necessary to verify, with due diligence, whether the preferential tax rates can be applied.
Apart from penal liability, filing an untrue statement will result in a penalty imposed on the taxpayer in the amount of 10% of the payment.
- The other method involves using tax exemptions under EU directives. Upon the taxpayer’s request (or tax remitter’s, if it incurred the economic burden of tax) and provided that the conditions required to apply the preferential tax rate or exemption have been met, the tax office shall issue an opinion confirming WHT exemption at the moment of making the payment. The opinion shall not be issued if there are doubts regarding the correctness of the submitted documentation, if the requirements to apply the exemption haven’t been met, if the anti-avoidance clause applies, or if there are doubts whether the taxpayer actually carries out real economic activity in their place of tax residence.
The opinion should be issued within six months from the day when the request was filed and would be valid for 36 months, unless the underlying conditions change prior to this term. The cost of obtaining such a document is PLN 2k.
How will the refund of overpaid tax look like?
The refund could be claimed either by the taxpayer or tax remitter (if it incurred the economic burden of tax). The request should be accompanied by:
- statement confirming the correctness of data provided in the request,
- certificate of tax residence,
- wire transfer confirmation regarding the payments subject to WHT, or other documents related thereto,
- taxpayer’s statement of being subjected to the tax from the entirety of its income,
- taxpayer’s statement of the beneficial ownership status,
- tatement that the taxpayer carries out real economic activity in its country of tax residence,
- documentation presenting the reason why the tax remitter paid the tax from their own funds.
The decision should be issued within six months from the day when the request was filed. However, this period can be extended by the tax office in case of a tax audit, customs and fiscal inspection, or tax proceedings.
If you already would like to secure the possibility of using the preferential WHT rates for payments made starting from January 2019, please contact us.
