On November 20, 2024, the Minister of Finance issued a general tax ruling no. DD9.8202.1.2024 regarding the conditions for applying the withholding tax exemption on dividends paid by Polish companies to foreign recipients. According to the ruling, a Polish tax remitter will not be required to withhold tax if the payment is subject to a tax exemption in the recipient entity’s country of residence. This exemption may arise due to domestic regulations implementing the Parent-Subsidiary Directive or if the tax is not paid due to the specific circumstances of the recipient entity in a given year, such as when the lack of effective tax payment results from the entity incurring or utilizing a tax loss during that year.
Further details below – we invite you to read on.
The ruling
General tax ruling DD9.8202.1.2024, issued on November 20, 2024, is significant for foreign entities with capital investments in Polish companies. It addresses the conditions for applying the withholding tax exemption on dividend payments to foreign companies.
In this ruling, the Minister of Finance particularly examined the condition that the recipient of the dividend must not benefit from an income tax exemption on all their income, regardless of the source. Given the inconsistent interpretation of this condition by administrative courts, the issuance of the general interpretation aims to resolve interpretative uncertainties and ensure uniform application of the relevant provisions of the CIT Act by tax authorities.
The Minister of Finance emphasized that the interpretation of this condition takes into account the objectives and rationale of the so-called Parent-Subsidiary Directive (Directive 90/435/EEC), which aims to eliminate double taxation of dividends in EU or EEA Member States. It also incorporates conclusions drawn from the judgment of the Court of Justice of the European Union (CJEU) dated March 8, 2017, case no. C-448/15.
Conclusion
The Minister of Finance clarified that the condition of “not benefiting from an income tax exemption on all of its income, regardless of the source” is not breached if the dividend recipient from another EU or EEA Member State benefits from a specific tax exemption on the received dividend, which stems from the implementation of the Parent-Subsidiary Directive into the local tax laws of that country.
At the same time, in the view of Minister of Finance, the following circumstances do not indicate that the taxpayer benefits from an exemption on all of its income within the meaning of Article 22(4)(4) of the CIT Act:
- profits are passed through a chain of entities in such a way that the dividend is not taxed at least once within the EU or EEA, where its ultimate beneficial owner is a company with tax residence outside the EU and EEA or an entity that does not meet the definition of a company under the Parent-Subsidiary Directive.
- the taxpayer does not pay income tax in a given tax year due to its individual situation (e.g., offsetting tax losses or earning only dividend income).
What does this mean in practice?
The ruling provides practical guidelines for Polish entities paying dividends to companies from EU/EEA countries regarding how to verify whether the above-mentioned exemption conditions are met by the recipients of these payments.
According to the interpretation, the tax exemption under Article 22(4) of the CIT Act can generally be applied in cases where:
- the foreign dividend recipient (from an EU/EEA country) is not subject to effective taxation (e.g., due to the entity’s specific tax situation)
- the dividend received by such a recipient is exempt from taxation in the recipient’s country of residence due to a specific exemption introduced in local tax regulations based on the Parent-Subsidiary Directive.
However, tax should be withheld if the dividend recipient is exempt from taxation as an entity or (as stated in the CJEU judgment referenced by the Minister of Finance) if the recipient is an entity subject to a 0% tax rate.
Additionally, as noted by the Minister of Finance, dividends should only be taxed if they are paid to the ultimate beneficial owner who has tax residency outside the EU/EEA or to an entity that does not meet the definition of a company under the Parent-Subsidiary Directive.
This interpretation is significant for numerous ongoing and future cases. It will likely influence matters before tax authorities and potentially court proceedings.
How we can help
We can assist you in analyzing the conditions for applying the tax exemption on dividend payments to foreign entities and in determining the necessary actions to secure this exemption. We are available to support you at every stage of your interactions with tax authorities.
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