The tax authorities have had a change of heart about use of withholding tax preferences. Their recent rulings suggest that the look-through approach may not be relied upon to obtain the dividend tax exemption. This is a complete turnaround comparing to the taxman’s previous approach whereby the look-through approach was admissible. Indeed, that this taxpayer-friendly position is the right one has been recently confirmed by none other than the Supreme Administrative Court. The current turnaround means that uncertainty in the application of preferential WHT treatments is likely to stay with us for a long time.
Withholding tax has been attracting increased attention of the tax authorities in recent years. Experts estimate that assessments made during WHT inspections have exceeded the PLN 1bn mark. WHT-related concerns are many, including mainly the beneficial owner test, the business substance test, the pay and refund mechanism, and a lack of clear guidelines on what constitutes due diligence. In addition, life is more difficult due to the constant changes in the regulations and the lack of uniform construal, of which the recent change of heart as to the look-through approach is but one example. Unfortunately, the WHT framework is up for even more changes as the European Commission is working on ATAD 3 directive.
In those circumstances, each payment to which WHT preferences (e.g. treaty exemption or rate) are applied currently means having to investigate the transaction and check the payee. A failure to do so or having no evidence that a due diligence check has been completed may result not only in financial penalties for the company but also in criminal tax liability being imposed on management personally.
Precisely those adverse consequences were on our mind when we prepared Sendero certification as a shield against WHT pitfalls. Sendero certification is a tool helping you to offer a plausible case that you have completed a due diligence WHT check. Our certification process involves verifying your transaction and your right to apply withholding tax preferences, and assisting you in collecting the supporting evidence. For more information about Sendero certification, see the attached brochure.