Poland: Another twist in the interpretation of “beneficial ownership”

As of 2022, Polish CIT regulations contain a new definition for beneficial owner (BO). To be considered a beneficial owner, the payee inter alia needs to carry out genuine business activities in the country of residence. The examination of the genuine business activity of the payee now requires an assessment of the 'nature and scale' of the activity carried out with regard to the concerned receivables.

The Polish Ministry of Finance has not published any tax guidance which could support the Polish WHT agents in the practical adoption of the amended definition. However, during 2022, the Voivodship Administrative Court in Lublin ('the Court') examined complaints against the refusals to issue preference opinions (which exempts WHT agent from the mandatory “pay & refund” mechanism), presenting its own assessment of genuine business activity criteria.

According to the court, the following circumstances speak against genuine business activity:

• lack of personnel or hiring just one part-time employee and members of the board performing similar activities for other group entities;
• close organisational, financial and personnel links between the taxpayer and other entities, and the fact that the taxpayer's activity background (premises, personnel, administration) is closely linked to the group to the extent that the other entities provide the taxpayer with all the elements necessary for its existence and for undertaking activities;
• the lack of ownership of the assets used to carry out the declared activity and the performance of the activity using, together with several other entities, a relatively small office;
• lack of proportion between the amount of initial capital and the level of assets and liabilities of the taxpayer;
• very low costs for the office rent, not incurring the salary costs of the employees the taxpayer declares to employ, but only incurring the costs of consultancy services.

According to the court's position, the taxpayer should have a minimum management capacity even if activities are outsourced, to verify the works presented by external parties, and to be able to make investment decisions. In each case, the court has also examined the circumstances of the business in detail, including analysing the taxpayer’s financial statements in terms of its assets and expenses.

Verification of beneficial ownership under the above rules is even more relevant, since the Supreme Administrative Court (“SAC”) in the judgement of 31 January 2023 (ref. II FSK 1588/20) indicated that the obligation of a WHT agent to verify the beneficial owner (BO) status of the dividend’s recipient, although it does not result directly from the conditions of the exemption, is justified in view of the Directive 2011/96/EU.

SAC indicated that the verification of the BO status should consider the payer's capabilities and does not imply an obligation to conduct proceedings as with the tax authorities. When assessing due diligence, the WHT agent’s situation should be taken into account, in particular: its position in the trade, the legal structure in which it participates, and the existence and type of links between the entities: personal, capital, organisational or the level of business professionalism.

Finally, SAC approved a look-through approach, i.e. applying WHT exemption/ preference when dividend is paid to an intermediary entity, if the beneficial owner of the dividend is known and is headquartered in the EU or EEA.

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