Withholding tax (WHT) is a tax deducted at source, especially one levied by some countries on interest or dividends paid to a person resident outside that country – in Poland concerning amounts exceeding PLN 2 million per annum. Under current regulations, entities could apply for an exemption or preferential WHT tax rate at the time of payment. The most controversial, however, is the obligation to exercise due diligence while verifying the contractor.
Due diligence, according to legislators, means several actions undertaken by the WHT payer, aimed at minimizing the risk of tax irregularities. Unfortunately, the definition and expected scope of these activities are still unclear. To address these problems, the Ministry has published a collection of advice called Rules for collection at source.
The statement does not provide a coherent and unambiguous definition of due diligence in WHT. Instead, it proposes several helpful practices that should be followed to properly exercise due diligence when checking foreign entities. When checking for the possibility of a preferential rate or exemption, payers of the withholding tax should:
Legislators propose a set of questions that must be answered each time to verify the contractor effectively.
Remember that the set of questions proposed by the Ministry is not a complete guide for due diligence procedures, but only suggestions that can be used voluntarily.
The Ministry is expected to broaden the scope of regulations by introducing clear definitions and practices. The options currently being considered by legislators include the requirement of the residence certificate and the introduction of the white list of countries to which preferential provisions will apply.