Supreme Administrative Court Does U-Turn on Withholding Tax Settlements
In its recent judgment, the Polish Supreme Administrative Court held that taxpayers wishing to benefit from an exemption from withholding tax on dividend payments must verify whether the recipient of such payments has the status of a beneficial owner. This finding comes as a surprise to tax advisors and lawyers alike because the CIT Act does not impose such a requirement.
Although the full implications of the judgment are yet unknown, it has already been said to massively increase taxpayers’ uncertainty by contradicting established case law (including the Supreme Administrative Court’s own judgment of 27 April 2021). Until now, the Polish administrative courts have consistently held that it was unnecessary to verify the status of a beneficial owner to benefit from an exemption from withholding tax on dividend payments.
“No reasons for the Supreme Administrative Court’s judgment were given. However, its correctness raises many doubts, as the requirement to have the status of a beneficial owner does not follow from Article 22(4)-(4d) of the CIT Act, setting out the conditions for an exemption from withholding tax on dividend payments,” notes Penteris Head of Tax Piotr Prokocki.
Crucially, the new interpretation proposed by the Supreme Administrative Court is not supported by the EU Parent-Subsidiary Directive, on which the Polish tax regulations are based. “This is because the Parent-Subsidiary Directive does not impose such a requirement either,” says Piotr Prokocki. “Polish tax authorities have other tools at their disposal to curb practices aimed at avoiding taxation – there is simply no need to use one that lacks legal basis,” he adds.