A revolution in withholding tax? European Commission proposes major WHT changes

In June, the European Commission presented a package of changes that could significantly reshape the rules on withholding tax (WHT) across the EU. The direction is clear: fewer administrative barriers and greater transparency.

What could change?

More lenient conditions for WHT exemption. The minimum shareholding threshold in the paying company (currently 10% for dividends and 25% for interest/royalties) would be removed for entities based in the EU/EEA.

Mandatory tax withholding in certain situations. If an interest or royalty payment is not taxed in the recipient’s country, WHT will need to be withheld – unless specific conditions are met, for example those related to the top-up tax under Pillar II.

Ex-post verification by tax authorities. Taxpayers will self-assess whether they meet the conditions for applying preferential treatment. Tax authorities will only be able to verify this after the payment has been made.

What about the pay-and-refund procedure?

A natural question arises about the future of the pay-and-refund procedure, under which a taxpayer – in order to apply preferential treatment directly – must submit a relevant statement or obtain a special ruling.

“At this stage, it’s difficult to determine exactly how the new rules will interact with the current pay-and-refund procedure. The proposals will need to go through the full negotiation and legislative process at EU level before we see final solutions implemented into Polish law. Even so, the direction of the changes is already clear: simplification and a reduction of the administrative burden in the WHT area” – comments Adrian Celiński from Thedy & Partners.

The package also includes proposals concerning reorganisations, tax reliefs, and tax proceedings. We will cover these in upcoming posts.

Contact on WHT matters:
Adrian Celiński – adrian.celinski@thedy.pl
Duszan Wolczyński – duszan.wolczynski@thedy.pl
Aleksandra Potocka – aleksandra.potocka@thedy.pl