Beneficial Ownership and Actual Business Activity

By Wojciech Jaskuła, Penteris

The definition of beneficial owner (BO) has changed the tax landscape in the EU. Severe obligations have been imposed on companies who are now obliged to verify numerous premises, when payment abroad is made, in order to determine whether BO conditions are met and, therefore, if a lower WHT tax rate or exemption might be applied.

In case of payments to another EU/EEA country, BO should be assessed from the perspective of both EU law and judgments of the Court of Justice of the EU.

For companies operating in Poland, for example, the BO is an entity that:

1. Receives a payment for its own benefit, decides independently how this is used and bears economic risk;
2. Does not act as an intermediary, proxy, trustee or is obliged to transfer the mentioned payment in whole or in part;
3. Conducts actual business in the country of its registered seat.

According to rules in Poland, “actual business activity” is linked with having premises, staff, and other organisational issues in that country. Interestingly, according to EU tax law and judgments of the Court of Justice of the EU, “actual business” activity should be verified on a case-by-case basis and is not necessarily linked with premises, staff, or the way management boards are organised.

This of course puts cross-border tax advisors in an interesting predicament. Bearing in mind the Court’s judgment, point 3. of the Polish definition goes too far and, as such, may be perceived as inconsistent with EU law.

Assuming no change in the wording of BO conditions, the impact of the above-mentioned judgments depends mostly on Polish administrative courts, namely, whether such judgments will be used to interpret BO conditions. Still, in case of doubts whether a particular BO has a suffcient level of substance, a Court’s judgments may be used as a supplementary argument in favour of BO status.

Wojciech Jaskuła

GGI member firm
Penteris
Law Firm Services
Warsaw, Poland
T: +48 22 257 83 00
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Penteris is a European law firm combining in-depth expertise, robust advice, and a pan-regional reach. We are committed to keeping clients ahead of the market with hard skills, legal acumen, and service-minded know-how.

Wojciech Jaskuła is a tax professional whose experience has been gleaned working for Big Four firms. His expertise focuses on legal and tax issues with respect to deals, international restructuring, and ongoing corporate advisory.

Publlished: International Taxation Newsletter, No. 14, Spring 2021 l Photo: udmurd - stock.adobe.com