The Ministry of Finance has postponed the application of provisions concerning the mandatory collection of withholding tax from liabilities exceeding PLN 2 million per year for the benefit of the same contractor until 1 January 2020.
Effects on payers
Until the end of 2019, taxpayers may collect WHT partially on the basis of previous rules (i.e. apply exemptions, remissions or lower tax rates also with reference to the liabilities which exceeded PLN 2 million in 2019).
However, it should be taken into account that from the beginning of this year, the taxable persons have been imposed on the duty to exercise due diligence. Before paying liabilities, taxpayers are required to verify substantive and formal conditions entitling to apply a lower rate or exemption (subject to penalties, up to the amount of even 10% of an additional tax liability and excluding the appearance of tax arrears along with interest).
Withholding tax (or rather failure to collect it) is also more and more often questioned by tax authorities (recently, there has been a high-profile case of Cyfrowy Polsat for the amount of around PLN 25 million, i.e. around EUR 6 million).
Restrictive attitude of tax authorities
The Ministry of Finance also published a draft of fiscal explanations with regard to withholding tax, which resolve many doubts as to the scope of the due diligence duty. The MOF’s draft of explanations of collecting WHT confirms the expected strict approach of tax authorities.
Particular attention should be paid to the Ministry of Finance emphasizing a higher standard of the due diligence with relation to paying liabilities between affiliated entities. Actions indicated by the MOF which should be undertaken by taxpayers contain, inter alia, a verification of the economic substance, financial flows, the function and the role of particular entities in the group. As far as paying liabilities between affiliated entities is concerned, in particular the passive ones (interest, dividend etc.), the duty to exercise due diligence means verifying transactions and recipients of the liabilities, in particular checking if the payment recipient has the beneficial owner status („beneficial ownership test”) and if they run actual economic activity in the country of the company’s seat (“economic activity test”), as well as determining the effective management (“effective management test”).
It is to be noted that in the project of explanations, the Ministry of Finance indicates receiving a report (opinion) from an independent auditor or tax advisor, prepared on the basis of an audit of documents, the actual economic substance and financial flows, as an example of taxpayer’s action in respect of the duty to exercise due diligence. Being in possession of such a report may be of significant importance in case of evaluating due diligence with regard to the most relevant payments (in particular passive payments between related parties, such as dividends and interest for the benefit of a shareholder). A report (opinion) drafted by a tax advisor may solve the problem of exercising due diligence in 2019 and the following years.
It is also worth noticing that for 2020 transactions to be secured against the obligatory collection of WHT, it may be necessary to undertake actions already. Hence, please take into account that the preparation of a binding opinion with regard to the withholding tax exemption may take 8-9 months (or even over a year, in complicated cases).
We would like to take this opportunity to remind you that 30 September is the deadline for reporting tax schemes by users. Failure to meet the requirements connected to MDR (Mandatory Disclosure Rules) is also subject to severe penalties.
Do you want to be up-to-date? Subscribe to Mazars Tax Newsletter