Update on withholding tax rules – general interpretation by the Minister of Finance

The Minister of Finance has issued new guidance on the WHT exemption for interest and royalties paid to entities established in the EU or EEA. The general interpretation clarifies the conditions that must be met to benefit from the tax exemption. Check what exactly has changed in the regulations and how these new rules may affect your business.

Interpretation of WHT legislation - what conditions must be met?

In a general interpretation issued, the Minister of Finance clarified the conditions that must be met to avoid withholding tax on interest and royalties paid to companies from the European Union or the European Economic Area. The basic conditions are:

Tax residency: the company receiving the distributions must be tax resident in an EU or EEA country;
No tax reliefs: the company does not benefit in its country of tax residence from exemption from income tax either on the total income received, or from exemption from income tax for certain categories of income, or from special income tax rules for income received from interest/royalty payments received
In the opinion of the Minister of Finance, fulfilment of the condition of non-exemption should be assessed through the prism of the tax legislation in force in the country of its tax residence or through the prism of special tax preferences granted to such an entity (e.g. on the basis of an administrative decision) by the tax administration of that country.

It should be recalled that the general interpretation issued on 20 November 2024 concerns Article 21.3c of the CIT Act. According to it, the exemption is available when a company generating the income specified in this provision ‘does not enjoy exemption from income tax on its entire income, regardless of the source of its generation’.

The interpretation of this provision relates to EU regulations. The objective of IR Directive 2003/49/EC on a common system of taxation is to create consistent tax rules across the European Union. Therefore, when analysing this provision, it should be borne in mind that interest and royalty payments between EU companies should only be taxed in one country. So, for example, if a Polish company pays interest and/or royalties to a German subsidiary, according to the EU Directive, these interest and/or royalties should be taxed either in Poland or in Germany, but not in both countries at the same time.

What does the interpretation mean for an entrepreneur?

Entrepreneurs who pay interest or royalties to foreign companies should carefully analyse the new guidelines to avoid unnecessary tax burdens. If in doubt, we recommend consulting a tax adviser.

Withholding tax (WHT) - how can we help?

Trust Crowe experts. We offer withholding tax support, including:

Risk mitigation: we will help identify receivables subject to WHT, reduce the risk of misinterpretation of regulations and the associated negative financial consequences
Tax optimisation: we will identify all available opportunities to apply withholding tax exemptions and reductions
Process security: we will develop a clear due diligence procedure to ensure compliance with applicable regulations and help protect the company from possible inspections and sanctions
Comprehensive support: we will provide a comprehensive withholding tax service, from analysis of the documentation, preparation of the request for an interpretation or opinion on the application of the exemption and filing of the WHT claim, to representation of the client in the proceedings

Check out our comprehensive service: Withholding tax (WHT)

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