Poland: Poland introduces substance test for payments to recipients abroad

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Poland: Poland introduces substance test for payments to recipients abroad

Sponsored by

sponsored-firms-mddp.png
ib-poland.jpg

Monika Marta Dziedzic, legal and tax advisor at MDDP, evaluates Poland’s new measures concerning payments to recipients abroad subject to a certain amount of withholding tax and what criteria must be fulfilled in order for an exemption or reduction to be applied.

As stated in the April issue of ITR, payments from Poland to a foreign entity subject to withholding tax (WHT) exceeding PLN 2 million ($500,000), will be subject to a standard 19% WHT rate. Such a recipient qualifying for an exemption or reduced WHT treaty rate, or in some cases WHT remitter, can apply for a WHT refund. The threshold will apply to one recipient per year. The date of introduction of these rules was deferred to January 2020.

However, already from the beginning of 2019, in order to apply the reduced WHT rates or exemptions from WHT, Polish authorities require the remitters to prove that the recipient is a beneficial owner of most types of the received payments, including interest, royalties, dividends and, according to some interpretations, also service fees.

The Polish definition of the beneficial owner differs a lot from the OECD standard. In addition to regular factors, such as not acting as an agent, trustee or intermediary, Polish law requires that the beneficial owner runs a so-called genuine business activity as specified by Polish law. This definition, in particular, requires taking into account the following:

  • Whether there is an undertaking in the country of the tax residency of the recipient of payment within which the entity actually pursues operations that constitute an economic activity, including in particular whether said entity has premises, qualified personnel and equipment used in the economic activity at its disposition;

  • Whether the entity in question does not constitute a structure whose functioning is not based on economic reasons;

  • Whether the scope of activity of a given entity is commensurate with its actual premises, personnel or equipment that it has at its disposition (consequently, for example, whether the personnel of the entity in question corresponds to the character of said entity and to the scale of its activity: e.g. one person is unable to take effective managerial decisions for more than a dozen companies conducting an economic activity);

  • Whether the arrangements concluded are consistent with the economic reality, are economically sound and do not stand in stark contrast to the general economic interests of the entity in question;

  • Whether the entity independently performs its essential economic functions using its own resources, including managers who are present on the premises.

The conditions for conducting a genuine economic activity will differ for manufacture and trade companies, service providers and companies involved in what is broadly understood as financial activity, such as investment or holding operations. However, in practice, proving genuine business activity in case of special purpose organisations may be problematic. Therefore it is worthwhile checking, if holding and group function companies like shared service centres, cash pool leaders or recharge vehicles especially receiving payments from Poland meet the Polish substance test. If not, the implication is not only that WHT will have to be charged at the standard 19% or 20% rate but also that the refund will not occur so easily.

MDDP Poland

T: +48 (22) 322 68 88

E: monika.dziedzic@mddp.pl

W: www.mddp.pl

more across site & shared bottom lb ros

More from across our site

The UK’s Labour government has an unpopular prime minister, an unpopular chancellor and not a lot of good options as it prepares to deliver its autumn Budget
Awards
The firms picked up five major awards between them at a gala ceremony held at New York’s prestigious Metropolitan Club
The streaming company’s operating income was $400m below expectations following the dispute; in other news, the OECD has released updates for 25 TP country profiles
Software company Oracle has won the right to have its A$250m dispute with the ATO stayed, paving the way for a mutual agreement procedure
If the US doesn't participate in pillar two then global consensus on the project can’t be a reality, tax academic René Matteotti also suggests
If it gets pillar two right, India may be the ideal country that finds a balance between its global commitments and its national interests, Sameer Sharma argues
As World Tax unveils its much-anticipated rankings for 2026, we focus on EMEA’s top performers in the first of three regional analyses
Firms are spending serious money to expand their tax advisory practices internationally – this proves that the tax practice is no mere sideshow
The controversial deal would ‘preserve the gains achieved under pillar two’, the OECD said; in other news, HMRC outlined its approach to dealing with ‘harmful’ tax advisers
Former EY and Deloitte tax specialists will staff the new operation, which provides the firm with new offices in Tokyo and Osaka
Gift this article