Pay & refund: how Poland changed the rules of the game in WHT

For a long time, the model was straightforward. A Polish company was to pay a dividend to its foreign parent. The accounting team collected a tax residency certificate, verified whether the conditions of the applicable double tax treaty or directive were satisfied, and – if everything checked out – paid the amount without withholding tax or at a reduced rate. Relief at source. The Polish company acted as a technical intermediary in the entire process: it obtained the certificate, compared it against the relevant provision, and either withheld tax or did not.

This model worked – and in simple, clearly structured arrangements, it worked reasonably well. The problem was that Polish and European group structures had long since ceased to be simple.

Why did the system need to change?

In the years between 2015 and 2018, a growing debate emerged at the European and global level about the way in which corporate groups were using dividend and interest exemptions through conduit companies. In many cases, the pattern looked similar: a payment was routed to a holding company in a jurisdiction with favorable tax treatment, from which  (after a short period) it was passed on to the actual beneficiary, who was often resident in a country outside the EU or in a country with which Poland did not have a favorable double tax treaty.

The intermediary company held an EU tax residency certificate. It formally met the conditions of the directive. It had an address, a bank account, and directors on paper. Its role, however, amounted to nothing more than passing the payment through.

In February 2019, the Court of Justice of the European Union delivered a series of judgments in Danish tax cases (including C-116/16 and C-117/16 on dividends, and C-115/16, C-118/16, and others on interest), which provided a European framework for combating such arrangements. Poland’s 2018 reform preceded those judgments but moved in the same direction: a formal tax residency certificate was no longer sufficient.

The reform of 23 October 2018 – what exactly changed?

The Act of 23 October 2018 amending the Corporate Income Tax Act introduced into the Polish system the mechanism commonly referred to as pay & refund. Its logic is the inverse of the previous model.

Under the old system: the payer assessed the conditions, applied the preference, and – if it did so correctly – was free of any further tax obligation.

Under the new system: where the total amount of payments made to a single foreign taxpayer in respect of items subject to WHT (primarily dividends, interest, royalties, and selected services) exceeds PLN 2,000,000 in a tax year, the payer is, as a general rule, required to withhold tax at the standard rate on the excess above that threshold. The preference – an exemption or a reduced rate – remains available, but no longer automatically. It requires the use of one of two instruments: the submission of a WH-OSC declaration by the management board of the Polish company, or the prior obtaining of an opinion from the tax authority.

The standard rates are 19% for dividends and 20% for interest and royalties. These are the rates applied when the preference has not been secured.

The repeated deferrals and their consequences

The provisions entered into force, but their application was repeatedly deferred by ministerial regulations. The deferrals covered successive years – 2019, 2020, 2021. Each time, the advisory community and companies awaited clarification of the rules, as the provisions gave rise to serious interpretive doubts.

That period was not, however, time wasted – though from the perspective of taxpayers fighting battles with the authorities, that may be a contentious claim. The Ministry of Finance was working on explanatory notes, draft documents were being prepared, and consultations were underway. In parallel, European case law was developing, providing an increasingly robust backdrop for the domestic regulations.

The deferrals also had a side effect: some businesses grew accustomed to operating under the old rules and did not prepare for the change. When the mechanism began to be genuinely enforced from 2022 onwards, many found themselves caught off guard.

What actually changed – the philosophy, not just the legislation

This is the essence of the matter and it is worth grasping before one gets into the specifics of the provisions.

Under the old model, the burden of analysis rested primarily on the foreign taxpayer. It was the foreign entity that had to satisfy the conditions for the preference. The Polish company played the role of a technical intermediary: it collected the documents, checked them, and applied (or did not apply) the preference.

Under the new model, the burden shifts to the payer – that is, to the Polish company. It is the Polish company that must:

• carry out a due diligence verification of the applicable conditions,
• assess whether the recipient qualifies as the beneficial owner of the payment,
• determine whether there is a sufficient basis on which to apply the preference, and
• where the PLN 2 million threshold has been crossed, either use one of the available instruments (the declaration or the opinion) or withhold tax.

If the payer applies the preference without an adequate basis, it is liable for the unwithheld tax, plus interest, plus the risk of fiscal criminal liability. Specific individuals on the management board bear that liability, not the company in the abstract.

This is a fundamental change. The Polish subsidiary has ceased to be a technical executor of the parent’s instructions. It has become an entity that must independently assess risk and make a decision – in full awareness of the consequences.

The PLN 2 million threshold – how should it be understood?

The PLN 2,000,000 threshold is calculated separately for each taxpayer (recipient) and separately for each tax year. This means that if a Polish company pays dividends to a single foreign parent company and at the same time pays interest on a loan to that same company, both amounts count toward a single threshold.

Below the threshold, the payer can still apply the preference directly at the time of payment. However, it must do so with due diligence. A tax residency certificate is a necessary minimum – it is no longer a sufficient condition.

Exceeding the threshold does not mean that the tax is definitive. It means that a regime is triggered in which the preference requires additional safeguards.

What does this mean for the foreign parent?

For a German parent company that has for years been receiving dividends from its Polish subsidiary free of withholding tax, the change may seem abstract. In practice, it has very concrete consequences.

First: the Polish subsidiary may now ask a question it has never had to ask before. “Do we have sufficient documentation to apply the preference?” If the answer is “we are not certain” it may withhold tax. Not because it wants to, but because it bears the liability – though the Polish company does also have the option of not withholding tax through specific procedures, which will be addressed in subsequent posts.

Second: if tax is withheld, the parent can recover it – but through a refund procedure. It must file a claim, attach documentation, and wait. The statutory period for processing the claim is six months. In practice, it may take longer. And throughout that entire period, the funds are frozen with the Polish fiscal authorities.

This is a liquidity issue that can be keenly felt when large payments are involved.

Where do we stand today?

The mechanism has been fully in force since 2022 and is being actively enforced – though not without friction.

The Ministry of Finance issued its final explanatory notes on the beneficial ownership clause in July 2025 (preceded by two draft versions, which differed considerably on certain points). This document has the status of explanatory notes within the meaning of Article 14a of the Tax Ordinance and provides formal protection for both taxpayers and payers. In November 2024, two general tax rulings were issued – one covering dividends and one covering interest and royalties.

New judgments from the administrative courts continue to emerge – sometimes in conflict with one another. The Lublin Tax Office (the specialized office responsible for issuing opinions on the application of preferences) issues its opinions. Or does not, despite the fact pattern being identical to that of another group company which received such an opinion several months earlier. The tax authorities have increasingly sophisticated analytical tools for identifying cross-border payments that warrant scrutiny.

This is not a topic awaiting future clarification. It is being actively interpreted and enforced here and now.

As part of this blog, I will be publishing regular posts on WHT with the aim of breaking the subject down piece by piece: from the pay & refund mechanism, through beneficial ownership, due diligence, domestic and European case law, general rulings and the Ministry of Finance’s final explanatory notes, through to what to do when the authorities come knocking. Written with Polish companies in mind – but above all with foreign parent entities who want to understand not just what the risks are, but also how to put sensible safeguards in place.