Transfer pricing and withholding tax in Poland: when do they affect each other?

Transfer pricing affects withholding tax in Poland mainly for interest and royalties paid to foreign related parties. WHT relief applies only to the arm’s length portion. Pricing, beneficial owner status and the procedure should be verified before payment.

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When does transfer pricing affect WHT in Poland?

The risk arises when a Polish company pays a related party more than it would have paid an independent counterparty. The excess above the arm’s length value may fall outside a WHT exemption or reduced treaty rate and may also trigger a transfer pricing adjustment.

Under Article 21(7) of the Polish Corporate Income Tax Act, the exemption for interest and royalties is limited to the market-level amount. The domestic WHT rate for these payments is generally 20%.

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What must be checked before applying WHT relief?

An arm’s length price is only one condition. The remitter should also verify:

• the classification of the payment,
• the certificate of tax residence,
• beneficial owner status,
• compliance with due diligence,
• the applicable double taxation agreement,
• whether the pay-and-refund mechanism applies.

For qualifying payments between specified EU or EEA companies, the exemption requires, among other conditions, an appropriate tax status, at least 25% capital ownership and generally a two-year holding period. These conditions do not cover a non-arm’s-length excess.

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Which transactions create the highest TP–WHT risk?

Particular attention is required for:

• intra-group loans that do not reflect currency, term, security or creditworthiness,
• cash pooling with identical terms for participants with different risks,
• licences where the royalty does not match the rights and benefits obtained,
• back-to-back financing that may undermine beneficial owner status,
• intangible services without evidence of performance.

The transfer pricing safe harbour does not confirm entitlement to WHT relief. The absence of a local file obligation also does not remove the arm’s length requirement or the remitter’s WHT responsibilities.

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How does the PLN 2 million threshold affect the procedure?

Where qualifying payments to the same foreign related party exceed PLN 2 million during a tax year, the pay-and-refund mechanism may apply. It mainly covers interest, royalties and dividends.

The threshold does not determine whether the payment is at arm’s length, but it requires the correct procedural route to be selected in advance. A benchmark prepared only after year-end may be too late.

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How should TP and WHT reviews be coordinated?

Before the first material payment, the company should classify the payment, determine the arm’s length remuneration, verify the recipient and legal basis for relief, check the PLN 2 million threshold and compile one consistent evidence package.

The evidence package should include the agreement, functional and risk analysis, an appropriate benchmark, certificate of residence, evidence of performance and beneficial owner documentation. In one audit of interest paid in 2019–2021, challenging the non-arm’s-length portion resulted in more than PLN 11.5 million of tax and late-payment interest.

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If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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