The tax authorities believe that outbound dividends are exempt from withholding tax provided that the payer acting as withholding agent proves the recipient is their beneficial owner. The courts, however, are questioning whether such an obligation exists.
Those who pay out dividends to entities in other EU Member States enjoy an exemption from withholding tax provided that they exercise due diligence in verifying whether the conditions for such an exemption are met.
This also pertains to other payments that are subject to withholding tax in Poland, including interest and royalties. Tax authorities believe that a dividend-paying company should be able to prove that the recipient of the dividend is its beneficial owner within the meaning of the CIT Act. This means that the recipient should carry out a substantive economic activity. In practice, this approach makes it impossible to distribute dividends without taxation to a large number of recipients, including foreign holding companies, which are not engaged in a typical operating business.
The full text of the article by our tax advisor, Tomasz Wilk, is available in the online version of Rzeczpospolita, the Dobra Firma weekly, and here.