Holding companies as payment-receiving entities: Implications for WHT refund claims in Poland

The case law of administrative courts indicates that genuine business activity should be assessed based on the assets and personnel available to the business entity (i.e. its business substance), its level of equity, and whether it bears the costs associated with its business activity. These criteria have been further clarified by Poland’s Ministry of Finance.

Sufficient business substance 

The Ministry’s tax guidance confirms that holding companies do not need to have as substantial an asset base as manufacturing companies to qualify as entities conducting genuine business activity. In the case of holding companies, having sufficient business substance generally means having appropriately experienced personnel who are genuinely involved in the entity’s business activities, possess sufficient expert knowledge, and have access to appropriate office equipment.

To demonstrate the holding company has sufficient personnel to enable it to carry out its business activities, it is advisable to:

• Document the allocation of duties and responsibilities among management board members;

• Highlight their education and professional experience relevant to the holding company’s activities; and

• Verify that their remuneration is appropriate to the functions performed.

An important factor is also whether management board members perform similar functions in companies outside the group. The tax authorities may treat this as the “service-based” performance of management functions, which may negatively affect the assessment of genuine business activity.

Shared business substance

The tax guidance also confirms that the use of shared personnel resources (e.g. an HR team employed by another group company), or shared assets (e.g. office space), does not, in itself, preclude a company from carrying out genuine business activity.

However, where a WHT refund is claimed based on benefits under EU directives, the concept of shared business substance can generally be relied upon only if the entity providing the relevant personnel or assets is located in an EU member state. Where the benefit is claimed under a double tax treaty, the entity providing such resources must be located in the same country as the company whose beneficial owner status is being assessed.

Summary

The Ministry’s tax guidance may be helpful in supporting a WHT refund claim. Nevertheless, the practice of the tax authorities and administrative courts remains particularly strict where the WHT taxpayer is a holding company. The arguments demonstrating beneficial owner status and genuine business activity should therefore be carefully considered and appropriately substantiated.

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Konrad Gańczarczyk has experience in ongoing tax advisory services to companies operating in the real estate, construction, and IT sectors.