Withholding tax – the ministry is open to changes
At the beginning of this year, new regulations were implemented with respect to the collection of the withholding tax (WHT), introducing specific due diligence requirements and obligatory tax refund system for payments exceeding PLN 2 million per annum to a single recipient. The Ministry of Finance organised a meeting where its representatives presented the principal assumptions of the changes which the tax administration intends to introduce to the WHT regulations. Entrepreneurs will certainly be happy that the amendment is going to include the majority of proposals submitted by the business sectors at a meeting that was held on 19 September.
The CIT act amendment assumptions presented by the Ministry of Finance include in particular:
- A restriction in the application of the tax refund mechanism to payments to affiliated entities, excluding payments to third parties from the tax refund system.
- A restriction in using the mechanism of tax refund only to passive payments (dividends, interests and licence fees), excluding the payments for services of an intangible nature from their range.
- Specification of the requirements concerning due diligence required for the verification of a business partner.
- Introduction of the so called white list of states where the payments made to the entities of those states can be subject to specific simplifications or assumptions.
- Specification of the definition of the beneficial owner and making it more similar to the definition known from the Model Double Tax Treaty.
- Expansion of the number of cases for which an opinion on WHT exemption can be issued, including payments benefitting from Double Tax Treaty protection, and not only on the basis of the European directives, as it was before.
- Express indication that the declaration on the failure to collect the tax should be signed in accordance with the company representation regulations and not by all members of the management board, as it was before.
- Shortening the period for tax refund from six to three months.
- Modification of the criminal tax liability based on Article 56d of the Criminal Tax Code through the removal of the threat of imprisonment for either providing false information (or withholding true information) in declarations submitted on the basis of the regulations on withholding tax collection.
The participants of the meeting submitted a number of proposals concerning the optimum state of the amended regulations. For example, the entrepreneurs argued that representatives, including tax advisors should be allowed to sign declarations. Another proposed improvement was shortening the time for issuing an opinion about application of the release. Companies were also interested in more detailed specification of the rules concerning the collection of WHT payments made to holding companies. The representatives of the Ministry of Finance agree to consider the proposals.
The planned schedule assumes that the amended regulations will be adopted in the first quarter of 2020 and will be applicable from 1 January 2020.
The question of how the period will be settled between the end of 2019, when the regulations issued this year suspending entering into force of the current regulations and the moment when the amended regulations will be adopted and enter into force, remains unclear. Information concerning this will be presented by the end of November 2019.
The Ministry is also planning to issue a general interpretation concerning the application of the WHT regulations applicable in the current year. This is focused in particular at the notion of due diligence.
The representatives of the Ministry encouraged the representatives of the business sectors to submit proposals, which could be included in the new regulations concerning WHT. Entrepreneurs are invited to share their ideas, without waiting for the formal beginning of the consultation procedure that accompanies the legislative process.
We will keep you informed of any further developments concerning withholding tax.