WH-OSC: one declaration, significant responsibility

The withholding tax payer’s statement (referred to in tax nomenclature as the WH-OSC) is one of two instruments that allows a Polish company to apply a tax preference (an exemption or a reduced withholding tax rate) despite having exceeded the threshold of PLN 2,000,000 in payments to a single foreign taxpayer.

On paper, it looks like a straightforward solution. Instead of withholding tax and waiting for the foreign parent to file a refund claim, the management board of the Polish company signs a declaration confirming that the conditions for the preference are met, and the payment proceeds without tax or at a reduced rate – quickly, without involving the tax authority, and without delaying the payment.

In practice, the WH-OSC declaration is one of the more consequential management decisions that the board of a Polish company can take in the tax domain. And it is worth understanding precisely what one is signing.

What does the declaration contain?

The legal basis is Article 26(7a) of the Corporate Income Tax Act. In submitting the WH-OSC, the payer declares that:

• it holds the documents required by tax law for the application of the tax rate, exemption, or non-collection of tax arising from special provisions or double tax treaties, and
• having carried out the due diligence verification referred to in subsection (1), it has no knowledge that would give grounds to suppose that there are circumstances precluding the application of those preferences.

Each of these statements relates to a different aspect of the payer’s obligations. The first concerns the documentary layer. The second concerns the verification that has been carried out and the absence of negative indicia that could preclude the application of the tax preferences in question — including those arising from anti-avoidance provisions and specific anti-abuse clauses.

Who may sign the declaration?

This is a point that frequently comes as a surprise to both Polish companies and their foreign parent entities. In practice, a common question is whether a power of attorney for the submission of electronic tax returns (UPL-1) – which may cover a board member or another person authorized to submit e-declarations – constitutes a valid basis for signing the WH-OSC.

Although such a power of attorney operates within the tax domain and permits the technical submission of many forms, it does not in itself constitute a sufficient basis for the submission of the WH-OSC. This follows from the distinct nature of this document – the WH-OSC is not a conventional tax declaration but a statement of knowledge with special substantive-law significance, carrying personal liability for the individual who submits it.

For this reason, established practice holds that what is decisive is not the technical authorization to transmit the document, but rather the authority derived from holding a position in the management body or from a formal assignment of responsibility within the company’s organizational structure. This is most commonly effected by way of a board resolution or a formally adopted tax procedure designating the individuals responsible for submitting declarations of this type.

Importantly, the regulations do not require such documents to be attached to the WH-OSC itself. In practice, this means that their significance becomes apparent only in the event of a tax audit or verification proceedings – at which point the company’s internal documentation becomes the key element in demonstrating that due diligence was exercised.

It should also be noted that holding a UPL-1 power of attorney may serve an ancillary purpose – particularly where the person submitting the WH-OSC is simultaneously a board member or has been formally designated to fulfil withholding tax obligations. It should not, however, be treated as the sole basis of authority to submit the declaration where there is no clear assignment of responsibility within the company’s organizational structure.

In summary, the WH-OSC may not be signed by a proxy – even where that proxy acts as the company’s tax adviser, chief accountant, or in-house legal counsel.

What should precede the signing of the declaration?

The phrase “having carried out verification with due diligence” is not an empty formality. It refers to a genuine verification process that must be completed before the WH-OSC is submitted.

The regulations do not provide a detailed definition of due diligence – its scope is developed through the interpretive practice of the tax authorities and the case law of the administrative courts. At the same time, it is expressly stated that the assessment of due diligence must take into account the nature and scale of the payer’s business. This means that the greater the scale of operations, the more complex the group structure, and the more frequent and higher-value the cross-border payments, the more rigorous the standard of verification expected.

In practice, for typical passive payments exceeding the PLN 2 million threshold, the verification process should encompass at minimum:

• a current tax residency certificate of the recipient,
• corporate registration documents and basic governance documents of the payment recipient,
• information on the ownership structure and beneficial owner,
• data concerning actual operational activity (i.e., the substance test – genuine human and material resources),
• information on the functions performed by the recipient within the group structure,
• financial statements or other data enabling an assessment of the scale of operations,
• an analysis of the economic source of the receivable (i.e., its genuine commercial rationale),
• an assessment of whether the recipient qualifies as the beneficial owner of the receivable and is not obligated to pass it on,
• information on how the receivable is taxed in the recipient’s country of residence.

The scope of this verification is non-exhaustive and should be tailored to the specific circumstances. Any element whose absence cannot be reasonably justified may, however, constitute a significant risk factor in the event of a tax audit.

The payer’s liability – this signature carries real weight

If a WH-OSC declaration is submitted and it subsequently transpires that the conditions for the application of the preference were not in fact met, the consequences may be material.

The Polish company, as the withholding agent, is liable for the tax that was not withheld despite an obligation to do so. Tax arrears accrue interest from the date of payment of the receivable to the date the tax is paid. Where audits cover multiple years, the amounts involved can be significant.

There is also the risk of liability under the Fiscal Penal Code. In particular, Article 78 of the Fiscal Penal Code provides for liability in respect of a payer’s failure to withhold tax or withholding it in an incorrect amount. This liability attaches to individuals — most commonly members of the company’s management bodies – rather than to the company itself.

This does not mean, however, that every irregularity in connection with a WH-OSC automatically gives rise to fiscal criminal liability. The degree of fault and the circumstances of the case are of decisive importance – in particular, whether the payer exercised due diligence and had a rational, documented basis for the assumptions underlying the declaration.

In practice, this means that the WH-OSC is not a mere technical formality, but a declaration carrying real liability – one submitted by the individuals managing the company, who should have a well-founded basis for the positions it embodies.

When should the WH-OSC not be submitted?

The WH-OSC is not a universal instrument and should not be treated as a standard component of every cross-border payment. There are situations in which its submission carries material risk and should, in practice, not take place.

This applies in particular where:

• the verification documentation is incomplete and cannot be reliably supplemented,
• there are material doubts as to the beneficial owner status of the recipient – in particular where the recipient acts as an intermediary company without genuine substance or a clearly defined economic role within the group,
• the ownership structure or payment flows are complex and may indicate onward transmission of funds,
• the tax authorities have raised objections in relation to similar transactions in the past,
• material changes have occurred in the group structure or the recipient’s status that have not yet been analyzed as to their impact on the conditions for applying the preference.

In such situations, the WH-OSC ceases to function as an administrative simplification tool and becomes a declaration requiring a very high degree of certainty as to the satisfaction of the statutory conditions.

Where the payer – and in particular the individual representing the company – does not have sufficient certainty that those conditions are met, the safer course may be to apply standard withholding tax collection and utilize the refund procedure, or to apply for an opinion on the application of the preference.

An important practical aspect: the submission deadline

The pivotal moment in the WH-OSC framework is the crossing of the PLN 2,000,000 threshold in payments to the same taxpayer within a tax year. From that point, the withholding tax regime changes, and the continued application of the preference requires the submission of a WH-OSC declaration (referred to as the primary declaration).

Once the threshold has been crossed, the payer has limited time to act. As a general rule, the WH-OSC must be submitted by the end of the second month following the month in which the threshold was crossed. Only upon its effective submission may the payer continue to apply the tax preference without triggering the pay-and-refund mechanism.

Where further payments are made following the crossing of the threshold during the same tax year, the WH-OSC also covers those payments – provided that, after the end of the tax year, a further declaration covering the entire year (referred to as the secondary declaration) is submitted. Its purpose is to close out the reporting period and confirm that the conditions for the application of the preference were satisfied throughout. Taxpayers whose tax year coincides with the calendar year have until the end of January of the following year to do so.

In practice, the WH-OSC framework therefore operates on the basis of two key control points: the moment the threshold is crossed and the close of the tax year. Meeting the deadlines at each of these stages is of fundamental importance for the correct application of withholding tax preferences.

Declaration or opinion – when to choose which?

The WH-OSC declaration is quick, but full liability rests with the management board. An opinion on the application of the preference requires the company to invest resources, engages the tax authority in the process, and takes considerably longer – but it provides external confirmation of the legitimacy of the preference and protects the payer who acts in accordance with it.

For a one-off, time-sensitive payment supported by sound documentation, the declaration may be the right choice. For recurring high-value payments in the context of complex group structures, it is worth considering whether waiting for an opinion – to be discussed in detail in the next episode — may be the more prudent course.

A closing remark

The WH-OSC is an instrument that the legislature has made available to payers so that they may apply the preference without having to withhold tax and wait for a refund. It is a useful tool — but only when used with a full understanding of what it actually entails.

A management board that signs a WH-OSC on the basis of a set of documents that “were somewhere in a folder on the server at some point” is assuming a risk it may not be fully aware of. A management board that signs a WH-OSC having carried out a genuine verification exercise, with complete documentation and a reasoned basis for every element, has a solid foundation on which to defend its decision.