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The amendment to the regulations, which incorporated a package of simplifications (the so-called slim VAT 3), introduced significant changes to the Polish tax law, including the change of CIT and PIT provisions. One important change is the imposition of new verification obligations on tax remitters. The new regulations will be effective from the beginning of 2024.
Published on 5 June 2023, the Act of 26 May 2023 amending the VAT Act and selected other acts (JL 2022, Item 1059), containing the so-called Slim VAT 3 simplification package, introduces a number of changes to the VAT regulations, but also to WHT regulations. One important change is the imposition of new verification obligations on tax remitters with regard to payments of interest and discounts on bonds made between related parties.
What is introduced?
The amended regulations provide that the so-called "pay-and-refund" mechanism applicable to passive payments exceeding PLN 2 million per year and made to related parties does not have to be applied to payments of interest or discount on bonds if the prerequisites to claim an entity-type exemption are met.
The prerequisites for the above exemptions are set out in the following:
- Article 17(1)(50a) of the CIT Act – exemption on interest and discounts on covered bonds received by non-resident investors, and
- Article 17(1)(50c) of the CIT Act – exemption on interest and discounts on bonds with a maturity of one year or more traded on regulated stock markets and/or those released for alternative trading within the meaning of the Act on Trade in Financial Instruments of 29 July 2005, in the territory of the Republic of Poland or the territory of a state that is party to a DTT with Poland - provided that the combined holding (i.e. directly or indirectly, together with other affiliated entities) of bond nominal value does not exceed 10%.
New duties of a tax remitter (technical payer)
This means that a technical payer (which is an entity that keeps securities accounts or omnibus accounts) will not be required to withhold WHT as long as it confirms that the payment recipient meets the conditions indicated in the aforementioned regulations.
However, the regulations do not specify e.g. how the extent of a taxpayer’s relationship with the issuer of bonds should be documented. The absence of any regulatory guidance in this respect may cause concerns, particularly over the required form of the document.
In the eyes of an EY expert
The amendments affecting WHT remitters’ duties require that the prevailing market practice should be monitored. Please note that Polish tax authorities often apply a restrictive approach, expecting remitters to meet high standards of due diligence. It is advisable to start preparations now by analysing the documents (e.g. statements) to be collected as proof that the WHT remitter duly verified the recipient and ascertained that all the criteria for not withholding any tax at source were met.
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Summary
The changes introduced by the Slim VAT 3 simplifications package may have a material impact on tax remitters’ duties; all entities keeping securities or omnibus accounts should remember that there are new obligations to follow and that they will be required to comply as early as at the beginning of 2024. Technical payers must adequately verify the payment recipient, which may involve the need to carry out relevant analyses.
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