The case regarding the withholding tax refund

The appellant was a Delaware-based trust made up of seven “series” (sub-funds), each of which was treated as a taxable entity under US law. This US trust could claim distributions as a business expense under US tax law, provided that at least 90% of taxable income (excluding realised appreciation) was distributed to investors, effectively reducing US federal tax to zero. Hence, foreign withholding tax could not be credited in the US. In 2013 and 2014, the US trust received dividends from two listed Austrian stock corporations. While the tax office reduced the Austrian withholding tax to 15% (in accordance with the double taxation agreement between the US and Austria), the appellant applied for a full refund of the withholding tax. This request was based on a provision in Austrian corporate tax law that allows EU and EEA resident entities a full refund when the withholding tax cannot be credited in the country of residence. According to a former decision of the Austrian Supreme Administrative Court (Ra 2020/13/006) this provision can be applied by applicants from third countries due to the free movement of capital.

The Austrian Fiscal Court (BFG, lower court) dismissed the appeal against the tax office’s rejection notice because the US trust has to be qualified as a foreign investment fund within the meaning of sec. 188 investment fund law and therefore the dividends are attributable to the shareholders, even if the US trust or the “series” are considered a taxpayer in the US. Thus, according to the Fiscal Court, the US trust could not apply for a refund.

Tests required by the Supreme Administrative Court

According to the Austrian Supreme Administrative Court, three steps must be taken to determine whether a foreign entity is entitled to file a withholding tax refund request:

• Comparability test – the first step is the assessment of whether the US trust is comparable to an Austrian corporation. If it is not comparable, the owners of the US trust would be the recipient of the respective income and hence would have to file respective withholding tax refund requests.
• Attribution of income – in case the US trust is comparable to an Austrian corporation, the question is whether the relevant income is attributable to the US trust or the natural persons (investors) owning the trust. In case the US trust is not comparable, and the income is also not attributable to the natural persons owning the US trust, the US trust might qualify as special purpose asset (Zweckvermögen).
• Applicability of special provisions of the Austrian investment funds law (sec. 188 investment fund law) – if the US trust is comparable and the income can generally be attributed to it or if the trust is a special purpose asset, it must be assessed whether sec. 188 investment fund law would apply. This would still lead to the transparency of the US trust according to sec. 186 investment fund law; hence the owners of the trust would have to file a withholding tax refund in Austria.

The Supreme Administrative Court has referred the case back to the Fiscal Court to perform those tests. This decision is still pending.

According to the Austrian Supreme Administrative Court, the regulation in sec .188 investment fund law has been compliant with the free movement of capital since it was amended in 2014. For 2013, it is up to the Fiscal Court to assess the compliance with the free movement of capital.

If you would like to know more about withholding tax refund or any other taxation issues in Austria, please visit the homepage of ICON Wirtschaftstreuhand GmbH, partner firm of WTS Global in Austria!

A Withholding tax refund in Austria to foreign trusts bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Postponements of Polish WHT changes 

As we wrote earlier, the Polish income tax laws were amended as of 1 January 2019 to change the Polish WHT collection procedures. Yet the Finance Ministry has already deferred the application of these changes on six occasions for CIT, and on five occasions for PIT, with the most recent delay lasting until 31 December 2021.

The regulations proposed in the draft law introducing the “Polish Deal” are very likely to determine the ultimate structure of the Polish WHT collection framework.

The Polish WHT collection mechanism

The draft proposes a hybrid withholding tax collection mechanism with both the “pay and refund” and the “relief at source” approaches. Which of these applies will depend on the payment type (the what test), the status of the payee as a related vs. unrelated party (the who test), and the total amount of payments made to the given taxpayer (the how much test).

Pay and refund mechanism 

As part of the hybrid Polish WHT collection system, the “pay and refund” mechanism will apply to:

a) income that is passive or should be treated this way, such as:

• dividends and other corporate profit distributions;
• interest, copyrights and related rights, rights (or sale of rights) to inventions, trademarks or industrial designs, royalties for the transfer of a secret formula or production process, or for the use of (or the right to use) an industrial device, including a means of transport, or a commercial or scientific device, or for the transfer of industrial, commercial or scientific know-how;
• income which, for no valid commercial reasons, was not treated as any of the foregoing;

b) income paid to related parties, if the total amount of payments subject to Polish WHT in any way and made to the same taxpayer exceeds PLN 2 million (roughly EUR 433,000) within the withholding agent’s tax year.

Relief at source mechanism

According to the draft, the “relief at source” approach will apply to:

• income other than passive income, such as payments for professional / management services (advisory, accounting, market research, legal, advertising, management and control, data processing, staff recruitment and acquisition, guarantees and suretyships, etc.);
• passive income paid to unrelated parties;
• passive income paid to related parties, if the total amount of payments subject to Polish WHT in any way and made to the same taxpayer does not exceed PLN 2 million within the withholding agent’s tax year.

Other Polish WHT changes 

The draft retains the anti-fraud due diligence rules which require the Polish withholding agent to verify if it is indeed lawful to exempt the payment, to forbear collecting the tax or apply any tax rate other than the standard one. The only change is that whether or not such due diligence is exercised must be determined by reference not only to the nature and size of the Polish agent’s business but also to intercompany relations as defined in transfer pricing regulations.

The draft law introducing the “Polish Deal” modifies the available options allowing the agent to apply WHT collection preferences, such options being:

• representation by the agent’s management, or
• an opinion on preferential treatment (this used to be an exemption opinion).

Currently, an exemption opinion may be requested by foreign taxpayers or Polish withholding agents (with the latter being allowed to do so only if they have incurred the economic burden of the tax) who enjoy WHT exemption under the PS Directive and/or IR Directive. According to the planned changes, opinions on preferential treatment may be requested by foreign taxpayers, withholding agents or entities making payments through entities operating securities accounts or omnibus accounts if the taxpayer is entitled to exemption under the PS Directive and/or IR Directive and/or if he is entitled to preferential WHT treatment under the double taxation treaty. This is undoubtedly the most important change regarding the Polish WHT scheme.

Additionally, the proposal slightly changes the definition of beneficial owner.

Apart from the changes to the Polish WHT framework, the “Polish Deal” draft introduces various relief and incentive measures to spur interest in investing in Poland (including the “Polish holding company” regime) and also makes it possible to opt for the application of VAT on financial services. If you are also interested in reading about these changes, please click here and download the latest WTS Global Financial Services Newsletter to read the full article, or contact the experts of WTS&SAJA Sp. z o.o. directly, the exclusive representative of WTS Global in Poland.

A Changes to Polish WHT framework according to “Polish Deal” bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Facts of the case concerning leasing personnel 

A UK provider of personnel had leased personnel to an Austrian company. The Austrian company had deducted 20% WHT of the providers’ remuneration including the charged costs for the accommodation of the leasing personnel. The UK provider then applied for a refund of the WHT insofar it did not concern the wages of the personnel, hence the WHT on his profit, overheads and the accommodation costs.

The competent tax authority denied the refund of WHT as the total WHT was lower than the wage tax calculated by the tax authority. The Austrian Fiscal Court rejected the argumentation of the tax authority and agreed to the refund request of the UK provider. The Fiscal Court clarified that Austria does not have a taxing right for the profit of the provider and for the accommodation costs. As the tax authorities appealed against the decision of the Fiscal Court, the Austrian Supreme Administrative Court (VwGH) was engaged with the case at hand.

Decision of the Austrian Supreme Administrative Court

The Austrian Supreme Court based its decision (23. 4. 2021, Ra 2020/13/0089) on the purpose of the WHT, which is to indemnify the underlying tax claim of Austria. In regard to the leasing of personnel the purpose of the WHT is not only to indemnify the tax in regard to the (first) receiver of the income (the UK provider), but also to the employees who receive their wages from the (first) receiver of the income.

According to the Supreme Administrative Court the refund of the WHT therefore requires that no reason for an indemnity of the tax regarding the income of the leasing personnel exists. This would only apply if the tax had been paid otherwise, e.g. via a voluntary payroll or by the leasing personnel filing individual income tax returns. Otherwise, the WHT can only be refunded if the deducted WHT exceeds the income tax that would arise if all employees would file an income tax return in Austria.

Conclusion 

This decision of the Austrian Supreme Administrative Court shows once more the complexity of the Austrian WHT rules regarding the leasing of personnel. To receive the WHT on the part of the remuneration Austria does not have a taxing right on, the provider of personnel must go to great lengths. Proofing that the WHT exceeded the income tax due of the leasing personnel will be costly and the provider might not have all relevant information (e.g. deductible income-related expenses of his personnel). One will have to wait and see how the tax authorities will apply this ruling in practice. Nevertheless, in order to avoid the Austrian WHT on personnel leasing remunerations for personnel working in Austria, implementing a payroll and applying for an exemption certificate beforehand currently seems to be the most efficient and safest option.

If you would like to know more about the rules on leasing personnel working in Austria, please contact the experts of ICON Wirtschaftstreuhand GmbH, partner firm of WTS Global in Austria!

A Judgement of the Austrian Administrative Supreme Court on leasing personnel bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Main rules in the CIT Act

Serbian withholding tax is paid on the statutory income that a non-resident legal entity derives from a resident legal entity. However, it should be noted that payers of Serbian withholding tax may also be non-resident legal entities in certain cases provided for by law.

Serbian withholding tax is calculated and paid on the following incomes generated by non-resident legal entities:

• income from dividend and profit shares in a legal entity
• income from copyright and related rights and industrial property rights
• interest income
• income from the lease and sub-lease of real estate and movable property on the territory of the Republic of Serbia
• income from market research, accounting and auditing services and other legal and business consulting services, regardless of where they are provided or used or where they will be provided or used (detailed description in the Rulebook issued by the Ministry of Finance)

20 or 25%: what does it depend on?

The rate at which income is taxed is 20% if the income is generated by a non-resident legal entity outside a jurisdiction with a preferential tax system (tax haven).

If the entity receiving the income from royalties, interest, lease and sub-lease fees of real estate and movable property in the territory of the Republic of Serbia, as well as fees on the basis of services (all services) regardless where they are provided or used, or where they will be provided or used, is from a jurisdiction with a preferential tax system, the Serbian withholding tax rate is 25%.

A non-resident legal entity may be a payer of Serbian withholding tax at a rate of 20% on the basis of realised capital gains, income generated from the lease and sub-lease of real estate and movable property in the territory of the Republic of Serbia, and on the basis of all the aforementioned income generated from the settlement of claims in the process of realisation, or in any other claim settlement procedure.

Serbian withholding tax and double taxation treaties

The Republic of Serbia has signed 60 treaties on the avoidance of double taxation, most of them with European countries.

The rates in these double taxation treaties (DTT) take priority over the withholding tax rate defined by the law.

Also, on the basis of DTTs or the provisions defined therein and based on the law, an entity may be exempted from the Serbian withholding tax in certain cases where it is possible to prove that the contracted non-resident is the actual owner of the income and they have a certificate on the residency of a non-resident legal entity. It means that if an entity receives services from abroad, you should first check whether there is a double taxation treaty with that particular country.

Click here if you would like to read the full article including all rates per country by types of income, the Serbian withholding tax relating to license and IT maintenance services or management fees and other details!

A Rules and rates of Serbian withholding tax bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

As written in an earlier article, the Ministry of Finance in Poland published a draft act on 23 October 2018, which introduced a Polish withholding tax reform. The changes were to come into force on 1 January 2019, but the Polish Finance Minister deferred the effective date of key amendments of the Polish withholding tax reform first until 1 July 2019, then again until 1 January 2020. However, just a few days before this date, a further postponement was published in the Journal of Laws (Dz.U.2019 poz. 2528).

Elements of the Polish withholding tax reform already in force

According to the latest official publications, withholding agents will not have to apply the new withholding mechanism in Poland until 30 June 2020. This mechanism requires agents to withhold tax at the standard statutory rates (20% for interest, royalties and intangible services and 19% for dividends) when taxable payments made to the same taxpayer exceed PLN 2 million (roughly EUR 460,000) during a tax year.

The regulation deferring certain parts of the Polish withholding tax reform entered into force on 1 January 2020. However, it will not affect certain requirements that have already been in force since 1 January 2019, including those concerning:

• due diligence verification of conditions for preferential tax treatment, and
• identification of beneficial owners.

Changes in the Personal Income Tax Act

Another regulation was published in the Journal of Laws on 30 December 2019 (Dz.U. 2019 poz. 2529) with effect from 1 January 2020, i.e. the Finance Minister regulation of 23 December 2019 amending the regulation on the non-application or limited application of Article 41(12) of the Personal Income Tax Act. This one postpones the new withholding rules in the Personal Income Tax Act for the period from 1 January 2020 until 30 June 2020. Withholding agents are still required to apply the new Personal Income Tax Act withholding rules to payments made between 1 July 2019 and 31 December 2019.

If you would like to know more about the Polish withholding tax reform, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland.

A Key amendments of Polish withholding tax reform deferred again bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

As we have written in an earlier article, on 23 October 2018 the Polish Ministry of Finance published a draft act, which introduces fundamental changes to the withholding tax regulations in Poland. The new law was planned to come into force on 1 January 2019 but on 31 December 2018 the Polish Finance Minister announced a regulation in the Journal of Laws, which aimed among others to defer the effective date of a part of the new withholding tax regulations in Poland.

Exclusions of the new withholding tax regulations in Poland

Another goal of the published text of the regulation is to exclude the application of the new withholding tax mechanism for the tax on the excess of more than PLN 2 million (roughly EUR 460,000) indefinitely for payments:

1. in respect of interest or discount on bonds issued by the State Treasury and offered on foreign markets or by the Bank Gospodarstwa Krajowego (and offered on foreign markets, intended to fund statutory activities of Bank Gospodarstwa Krajowego, concerning support to the economic policy of the Council of Ministers, implementation of governmental social and business programmes, local self-government and regional development programmes), obtained by taxpayers subject to limited tax liability in Poland;

2. to central banks that are not established in or managed from Poland, obtained in respect of interest or discount on bonds issued by the State Treasury on the Polish market and acquired starting from 7 November 2015;

3. to business units established by the state administration authority and other countries under an agreement or contract unless these agreements or contracts provide otherwise;

4. to international organisations of which Poland is a member;

5. to entities with which Poland signed co-operation agreements if they were exempted from corporate income tax on these payments;

6. to entities exempted from corporate income tax if their names are given in the double tax treaty to which Poland is a party;

7. to taxpayers established in or managed from a country with which Poland has a double tax treaty that addresses the taxation of dividends, interest and royalties and with which Poland is legally permitted to exchange tax information, if these payments represent:

• royalties for an industrial device including a vehicle or a commercial or scientific device,
• fees for transportation of cargo or passengers out of Polish ports by foreign commercial sea carriers, except for transit cargo/passengers,
• earnings of foreign air carriers in the territory of Poland, except for earnings from scheduled ticketed passenger flights.

The exclusion is applicable:

• until 30 June 2019 with respect to any other payments than those listed in 7. above, if Poland is legally permitted to exchange tax information with the taxpayer’s country of residence;
• until 30 June 2019 with respect to dividends and other corporate profit distributions to Polish tax residents.

Two different tax processes will have to be pursued

Due to the new withholding tax regulations in Poland there will actually be two procedures for WHT refunds:

1. Where the total amount of payments during the tax year is up to PLN 2 million (roughly EUR 460,000), WHT can be reclaimed using the old process, i.e. the general procedure applicable to refunds of overpaid tax pursuant to the Taxes Management Act. This means, for example, that refund claims may be sent to tax authorities on paper.

2. Where the total amount of payments during the tax year exceeds PLN 2 million (roughly EUR 460,000), the refund process will be managed on the basis of the CIT Act. One effect is that both WHT refund claim and all the appendices must be sent to tax authorities electronically in the JPK format (Polish version of SAFT).

This change means that, unfortunately, two different tax processes will have to be pursued, even where the tax was unduly withheld from one payment that exceeded PLN 2 million during the tax year.

It is also important to mention that even though the go-live date for the new withholding tax regulations in Poland has been deferred until 1 July 2019, the limit introduced by it (PLN 2 million) will be verified by reference to payments made on or after 1 January 2019, regardless of the particular layout of withholding agent’s tax year.

If you would like to know more about the new withholding tax regulations in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland.

A New withholding tax regulations in Poland bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

The new treatment will apply to Polish-source income of non-residents (e.g. dividends, interest, royalties, intangible services) as well as certain incomes and payments to Polish residents (e.g. dividends and other profit distributions in corporate entities).

Withholding tax for payments not exceeding PLN 2 million

If taxable payments made to a taxpayer during a tax year do not exceed PLN 2 million (roughly EUR 460,000) in total, the withholding agent will still generally be to apply withholding tax exemption (under a relevant double tax treaty or provisions of the CIT Act implementing EU Directives) or a reduced withholding tax rate according to current rules.

Withholding tax for payments over PLN 2 million

Where taxable payments made to a taxpayer during a tax year exceed PLN 2 million in total, the amount above PLN 2 million will be subject to withholding tax at the relevant rate set out in the CIT Act (20% for interest and royalties, 19% for dividends).

Declaration

If a withholding agent wishes to apply a double tax treaty rate or exemption, or an exemption under the CIT Act at the time of payment, then for the amount above PLN 2 million they have to declare that they:

• have the documents required by tax law as evidence that the reduced rate, the exemption or the decision not to withhold the tax is justified under tax law;
• are not aware of any circumstances that would prevent the application of such reduced rate, exemption or decision. This declaration includes applying the new definition of “beneficial owner” (definition also to be clarified) and confirmation that the taxpayer carries out “real economic activity” according to the CIT.

The declaration should be signed by the head of the withholding agent entity.

Opinion

Alternatively, the exemptions for interest, royalties and dividends (based on domestic provisions implementing the Parent-Subsidiary Directive and Interest-Royalties Directive) can be applied to amounts over PLN 2 million if the relevant tax authority issues an opinion that the withholding agent may do so. Such opinions are issued at the request of taxpayers or withholding agents within six months for a fee of PLN 2,000 (roughly EUR 460).

Refunds 

If none of the above exceptions (declaration or opinion) applies, the withholding agent must calculate, withhold and remit the tax on the amounts over PLN 2 million using the rates provided for in the CIT Act.

If an exemption or reduced rate is applicable, the tax authority shall, if so requested by the taxpayer or withholding agent, refund the tax paid or the difference in the tax withheld without the reduced rate or exemption. A number of documents will have to be attached to such requests.

The mentioned amendments regarding withholding tax are currently being worked on within the Polish government and according to plans will come into force on 1 January 2019.

If you would like to know more about the new withholding tax collection mechanism or other tax issues in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative for Poland of WTS Global.

RELATED ARTICLES:

Amendments to transfer pricing regulations and to the CIT law in Poland

Polish monitoring system will be extended to rail transport

Poland plans changes to minimum income tax on commercial property

Optional split payment in Poland from July 2018

Financial statements in Poland soon to be in electronic form only

RELATED PUBLICATION:

Tax and Investment Facts in Poland 2017

A New withholding tax collection mechanism in Poland bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.