Conditions for withholding tax exemptions on interest and royalties paid by Polish entities to nonresidents
The Minister of Finance on November 27, 2024, published a general ruling (DD9.8202.2.2024, dated November 20, 2024), addressing conditions for withholding tax exemptions on interest and royalties under Article 21(3) of the corporate income tax law.
This ruling follows a previous general ruling on dividend taxation published on November 20, 2024 (DD9.8202.1.2024, dated November 15, 2024). Read TaxNewsFlash
The ruling clarifies that for withholding tax exemptions on interest and royalties paid by Polish entities to nonresidents, the condition of “not benefiting from income tax exemption on its total income" must be considered in the context of the recipient's jurisdiction. It states that the recipient must not benefit from any income tax exemption on its total income or any part thereof, nor from preferential tax rules for interest or royalties.
The Ministry of Finance emphasized that the assessment of this condition is be based on the tax laws of the recipient's country of residence or specific tax incentives granted by that country's tax administration. The ruling also notes that if the taxpayer does not pay income tax in its country of residence on the income earned in a given period (e.g., due to the utilization of tax losses), that alone does not indicate that the analyzed condition is not satisfied.
KPMG observation
The ruling on interest and royalties does not fully align with perspectives from discussions within withholding tax working groups. The Ministry of Finance's position on considering objective exemptions and tax preferences raises ambiguities, as the condition refers to subjective exemptions related to the taxpayer's worldwide income.
Read a December 2024 report prepared by the KPMG member firm in Poland