From 2022, payers of withholding tax (WHT) are subject to the pay and refund mechanism. An amendment introduced in the Corporate Income Tax Act (CIT Act) allows a taxpayer or payer to request an opinion on the application of WHT preference in order to omit the application of the aforementioned mechanism. Such a request should be made to the competent head of the tax office, and the fee for its issuance is PLN 2,000. The opinion must be issued no later than within six months of the application being received by the office.
As part of the opinion on the application of WHT preferences, the office may confirm the possibility of applying an exemption from the collection of this tax on the basis of specific provisions or even not collecting the tax or collecting it at a lower rate on the basis of a relevant double taxation avoidance agreement. The opinion issued is valid for 36 months from the date of issue.
Taxpayers can avoid the pay and refund mechanism
An alternative to issuing an opinion is to file a declaration on form WH-OSC. In it, the representative of the paying company certifies that he or she is in possession of the necessary documents for the application of preferential WHT taxation and that an adequate verification of the counterparty in this respect has been carried out. In contrast to the opinion on the application of preferences, the form only allows transactions to one counterparty to be exempted from the pay and refund mechanism.
Extension of time limits
Originally, the literal interpretation of Articles 26(7c) and 7g of the CIT Act implied that the WH-OSC statement could only be filed twice in a calendar year.
In the first instance, the so-called primary statement, covering with its force the month of exceeding PLN 2 million in distributions. The secondary statement could be filed after the end of the second month following the filing of the primary statement.
This interpretation of the legislation provided exemption from the pay and refund mechanism for only a few months of the year.
The amendment introduced by the amendment extends the effectiveness of the primary declaration until the end of the tax year. Due to the change in the length of the exemption resulting from the filing of the original WH-OSC statement, the deadline for filing the follow-up statement has been changed. The deadline has been moved to the last day of the month following the end of the payer’s tax year.
The deadline for filing the original statement has also been amended. Prior to the amendment, in order for the declaration to have legal effect, it had to be filed no later than by the date of payment of tax for the month in which the amount of PLN 2 million was exceeded. After the amendment, the statement must be submitted by the last day of the second month following the month in which the amount of PLN 2 million was exceeded.
The application of the new rules under the transitional provisions concerning the extension of the WH-OSC statement applies to payments occurring after 31 December 2021. These provisions came into force on 26 October 2022. The remaining provisions of the Amendment Act apply from the beginning of 2023.
If you have any doubts regarding withholding tax topics, we encourage you to contact the tax department of our law firm.
Aleksandra Philips, LL.M., VAT-specialist
Maciej Gryka, Junior tax consultant