Tax rollercoaster. WHT on dividends

This is how one could summarise what has been happening recently in the jurisprudence on WHT (withholding tax) from dividends, and more specifically regarding the obligation of entities (payers) who pay dividends to their EU parent companies.

For several years now, out of nowhere, the tax authorities – contradicting previous, long-standing and common practice – have been ‘generating’ a dispute as to the exemption from Article 22(4) of the CIT, i.e. whether it depends on whether the entity receiving the dividend (the parent company) also has the status of its beneficial owner. A dispute that has no justification in the wording of the legislation, and it is well known that a literal interpretation ‘is not only the starting point for any kind of interpretation of the law, but also defines its boundaries within the possible meaning of the words contained in the legal text’.

Until 31 January this year, the prevailing position in practically all WSAs (except one) and in the NSA (II FSK 240/21) was that the ‘dividend recipient’ is only the ‘dividend recipient’ and the payer is not obliged to investigate who the actual owner is.

31 January 2023. The NSA held that – despite the fact that such a condition is not written down by either the national or the EU legislator – it does exist somewhere in the skies, and every payer should know this (II FSK 1588/20).

Shortly thereafter, i.e. on 8 February, the NSA again ruled that it is not the payer’s duty to check (before applying the exemption) whether its shareholder is the actual owner of the dividends paid out (II FSK 1277/22 and II FSK 1281/22).

Observing the market, I see that the authorities often initiate penal and fiscal proceedings in these cases and – having determined the arrears in the WHT – demand payment with interest.

If you would like to read the entire column, please see Parkiet, 2 June 2023, as well as in the online edition of the newspaper, page 16