Obligatory collection of withholding tax may be postponed again
Recently, the Ministry of Finance has published a draft regulation under which the entry into force of the obligatory collection of withholding tax on payments exceeding PLN 2 million per year is postponed once again.
According to the regulations which were to come into effect on 1 January 2020, a remitter making a payment to a certain foreign recipient in respect of interest, dividends, royalties or fees for selected intangible services, in the total amount exceeding PLN 2 million per year, will be obliged to deduct withholding tax on the excess of such amount, according to the base rate under the national regulations (20% or 19%), regardless of any exemptions, rate reductions and preferences under the Income Tax Act or any relevant convention for the prevention of double taxation. Subsequently, the remitter or taxpayer may apply for a refund of such collected and paid withholding tax. The remitter may derogate from that obligation provided a relevant statement is made or the tax office issues an opinion on the application of exemption (only in selected cases).
According to the draft regulation, the obligatory collection of withholding tax on amounts exceeding PLN 2 million would come into force six months later, i.e. on 1 July 2020.
In addition, the regulation is to exclude, indefinitely, the obligatory collection of withholding tax in the event of payment of interest or discount on bonds offered by the State Treasury and Bank Gospodarstwa Krajowego on national markets (so far, the exclusion has applied only to bonds offered on foreign markets), and in the case of payment, by the State Treasury, of remuneration for selected intangible services related to the issue of bonds offered on foreign markets. This is aimed to ensure diversification of the pool of buyers of treasury bonds and to improve competitiveness against the bonds of other issuers.
At the same time, it should be stated that the six months’ deferral of the obligatory collection of withholding tax does not apply to any other obligations and restrictions relating to withholding tax that became effective on 1 January 2019, such as: due diligence in the verification of conditions of preferences in respect of withholding tax, new definition of beneficial owner, additional tax obligations, or amendment of the principles of remitter’s liability for non-collected tax. This was also emphasised by the Ministry of Finance in the rationale for the draft regulation. Therefore, as the year approaches its end, it is worth to review the payments made to foreign counterparties, both in the light of the regulations applicable as of 1 January 2019, and the new tax collection principles which are likely to come into force on 1 July 2020.
It is also important to state that the draft regulation suggests that the Ministry of Finance is planning to amend the provisions on withholding tax once again. The modification is to come into force in the third quarter of 2020. Therefore, one should expect the obligatory collection of withholding tax to start applying simultaneously with the said modification of regulations.
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