No duty to verify beneficial owner status for dividend exemption – Polish Supreme Administrative Court ruling

In recent years, payers in Poland have faced numerous disputes with tax authorities regarding the right to preferential withholding tax (WHT) rates, including the obligation to verify the beneficial owner (BO) status of entities receiving dividends. This issue remains one of the most contentious areas within Polish withholding tax regulations.

In a judgment of 9 October 2024 (Case No. II FSK 78/22), the Supreme Administrative Court (NSA) of Poland ruled favourably for taxpayers, stating that a Polish company distributing dividends to a foreign shareholder is not obliged to verify or document that the dividend recipient is the beneficial owner of the dividend.

Below, we outline the key aspects related to the obligation to verify the status of the dividend’s beneficial owner.

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Background of the case – what was the dispute about?

The case concerned a Polish company operating in the animal health sector. Its sole shareholder was a company registered in the Netherlands, a tax resident of that country and a member of the European Union. The key facts presented by the company were as follows:

• Relations between companies: The Dutch shareholder held 100% of the shares in the Polish company continuously for over two years. These shares were not encumbered by any property rights or agreements limiting the shareholder’s economic power.
• Dividend recipient: The shareholder was indisputably the legal owner of the dividend and was not obligated to transfer the funds to any other entity.
• Planned payments: The dividend was to be paid in one or several tranches, and the amount could exceed the threshold of PLN 2 million, which would trigger the “pay and refund” mechanism described in Article 28b of the CIT Act.

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Interpretation questions

The company, in order to secure its position, asked the Head of the National Revenue Information Service (KIS) for an interpretation of the regulations. It asked two key questions:

1. In the case of a dividend payment, in order to benefit from the exemption under Article 22(4) of the CIT Act, must the company verify that its shareholder is the beneficial owner of the dividend?
2. When applying for a refund of withholding tax (WHT) on excess dividends above PLN 2 million, is the company required to submit a statement on the status of the beneficial owner, even if the status of the beneficial owner is not a condition for exemption under Article 22(4)?

According to the company, the provisions of the CIT Act do not require the recipient of the dividend to have beneficial owner status, either to qualify for the exemption or when applying for a refund. The company argued that the provisions for exemption (Article 22(4)) and tax refunds (Article 28b) are separate and independent, and the conditions of one should not be extended to the other.

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Position of the National Revenue Information Service

In the interpretation, the Head of the National Revenue Information Service found the Company’s position to be incorrect, pointing to the following arguments:

• The payer is obliged to verify the beneficial owner status of the dividend recipient when applying the exemption under Article 22(4) of the CIT Act and as part of the due diligence required by anti-abuse provisions.
• When requesting a tax refund under Article 28b, the payer must include a statement confirming the status of the beneficial owner of the dividend. According to the authority, these regulations are closely related to the provisions on exemptions and should be applied together.

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Judgement of the Voivodeship Administrative Court and Supreme Administrative Court

The case was first reviewed by the Voivodeship Administrative Court (WSA) in Warsaw, which overruled the interpretation issued by the Head of the National Revenue Information Service in its judgment of September 20, 2021 (Case No. III SA/Wa 562/21).

Voivodeship Administrative Court held that:

• Article 22(4) of the CIT Act does not impose a requirement for the payer to verify the beneficial owner status of the dividend recipient. According to the court, a literal interpretation of the provisions does not provide grounds for expanding the payer’s duties to include verification of a premise that is not explicitly stated in the law.
• With regard to the withholding tax refund procedure (Article 28b), the WSA said that since no verification of the status of the beneficial owner is required when paying dividends, such verification is also not required in the tax refund procedure. The court emphasized that the provisions on exemptions and refunds should be interpreted consistently.

The tax authority filed a cassation appeal against the WSA’s judgment with the Supreme Administrative Court (NSA).

In a judgment of 9 October 2024 (Case No. II FSK 78/22), the NSA shared the position of the WSA on the dividend exemption. The court held that:

• Dividend exemption: there is no requirement to verify the status of the beneficial owner on the part of the dividend recipient when applying the exemption under Article 22(4) of the CIT Act. The NSA confirmed that such an obligation does not arise from the regulations, and the interpretation flowing from previous judgements of administrative courts (e.g. WSA in Warsaw and other NSA judgments) supports this view.

However, with regard to tax refunds, the NSA took a different position:

• Tax refund: The NSA held that the provisions of Article 28b of the CIT Act are autonomous and do not follow directly from the exemption regulations. Accordingly, a payer seeking a tax refund must comply with all the requirements under this provision, including providing a declaration of the status of the beneficial owner of the dividend recipient. Failure to provide this document makes it impossible to grant the application.

The judgment of the Supreme Administrative Court made a clear distinction between tax exemption and refund of overpayment, pointing out the different obligations of the payer in each of these procedures.

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Summary

The judgment of the Supreme Administrative Court (Case No. II FSK 78/22) made an important distinction between the payer’s obligations in the procedure for direct exemption of dividends from withholding tax and the procedure for tax refund. The Supreme Administrative Court confirmed that:

• Dividend exemption: For payments not exceeding PLN 2 million, there is no requirement to verify the status of the beneficial owner (BO) of the dividend recipient, as no such requirement arises from Article 22(4) of the CIT Act.
• Tax refund on excess over PLN 2 million: When using the “pay and refund” mechanism under Article 28b of the CIT Act, the payer must submit the required documents, including the dividend recipient’s statement on the status of the beneficial owner.

To minimize risk, payers should:

• Exercise caution when distributing dividends, particularly amounts exceeding PLN 2 million.
• Collect complete documentation, especially for tax refund procedures.
• Monitor the development of case law and interpretations of withholding tax regulations.

While this judgment offers a significant reference point, the issue of verifying beneficial owner status remains one of the most problematic issues in the withholding tax area in Poland.

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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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