The concept of shared personal and asset substance in the new WHT Explanations

The latest explanations issued by the Ministry of Finance on 3 July 2025 regarding withholding tax (hereinafter: the WHT Explanations) clarifies that an entity may be recognised as the beneficial owner of a payment even if it relies on the so-called shared personal and asset substance, i.e. the personnel or infrastructure of other companies within the group.

Until now, the application of this concept in practice has been fraught with uncertainty and was not always accepted by the tax authorities, which were reluctant to grant beneficial owner status to entities that, lacking sufficient own resources, relied on support from related parties.

Who is the beneficial owner of a payment?

The beneficial owner (BO) of a payment is an entity that:

• receives the remuneration for its own benefit;
• bears the risk of loss of that remuneration;
• conducts genuine business activity in its state of residence and does not act as an intermediary or trustee with respect to the remuneration received.

In assessing the last element, the existence of business substance is examined – appropriate premises, licences, personnel, etc. Where the payer fails to establish the status of the beneficial owner, the risk arises that WHT reliefs (exemption or reduced rates) may not be applied.

What is the concept of consolidated substance?

The concept of consolidated substance allows, for WHT purposes, the beneficial owner status to be determined by reference not only to the economic and operational substance of the direct recipient of the payment, but also to the wider resources of the group of related entities. In practice, this concept may apply where the direct recipient of the payment (e.g. interest or royalties) does not independently possess adequate human resources (such as skilled personnel or management) or assets (e.g. office infrastructure) to conduct business activity, but, through intra-group cooperation, has access to all necessary means.

The fact that the Ministry of Finance in the WHT Explanations permits beneficial owner status to be recognised for an entity which, while not holding sufficient own resources, makes use of the assets and human capital of other group companies, marks a wholly new approach. It reflects an acknowledgement of the realities of doing business within corporate groups. The WHT Explanations may therefore present an opportunity to facilitate the application of WHT preferences – although it must be emphasised that applying the shared substance concept will require the payer or taxpayer to evidence compliance with the relevant conditions.

It must also be noted that, according to the WHT Explanations, the application of the shared personal and asset substance concept may be subject to restrictions linked to the tax residence of the entity making resources available to the recipient of the payment – it must be resident in the EU (for EU directive-based exemptions) or in the same jurisdiction as the recipient (for preferences under a double tax treaty – DTT).

WHT compliance obligations and shared substance

WHT compliance refers to the set of actions and obligations that a WHT remitter (an entity making payments to a non-resident) must undertake to ensure the accurate settlement of tax liabilities. These actions include, inter alia:

1. determining the nature of payments made and assessing whether they are subject to WHT;
2. establishing the country in which the payment recipient has its registered office or place of residence for tax purposes;
3. verifying the conditions for the application of WHT preferences (WHT exemptions or reduced tax rate under the relevant DTT or EU Directives);
4. examining the status of the payment recipient as beneficial owner (for certain types of payments);
5. examining other conditions entitling to the application of tax preferences (e.g. shareholding requirements);
6. maintaining records and collecting appropriate documentation evidencing the right to apply preferential WHT treatment;
7. withholding the tax and remitting it on time to the competent tax authority;
8. filing the tax return and fulfilling reporting obligations.

The introduction of the shared substance concept will significantly impact WHT compliance duties for tax remitters when evaluating the beneficial owner status of the recipient.

When assessing BO status, WHT remitters must consider the possibility that the payment recipient conducts genuine business activity utilizing personal and asset resources made available by related entities. This generates additional requirements in terms of documentation and due diligence procedures.  

With regard to due diligence, the WHT Guidance states that the tax remitter cannot rely solely on representations made by the recipient, but must independently assess whether the conditions of shared substance are met. Moreover, the standard of due diligence depends on the nature and scale of the tax remitter’s business and its relationship with the recipient (within the meaning of transfer pricing regulations). The stronger the connections and the higher the payment amount, the greater the standard of care required.

In the context of shared substance, a key element of verifying BO status is the collection and analysis of appropriate documentation. Such documentation should confirm that, under the given circumstances, the provision of resources by related parties justifies the conclusion that the recipient is carrying on genuine business activity and may therefore be recognised as the beneficial owner of the payment.

To evidence that the payment recipient uses the personal and asset resources of another entity, it is advisable to review documents such as:

1. agreements under which resources are made available to the recipient (e.g. management agreements, service agreements, cost-sharing arrangements);
2. invoices or notes confirming that the recipient bears costs associated with the use of the resources;
3. other documents showing that, despite being formally employed by another entity, certain individuals actually perform tasks for the recipient’s business, or that assets are in fact effectively utilized for the purposes of the payment recipient’s business.

Practical challenges in applying the shared substance concept

The WHT Explanations is certainly a positive signal – the interpretative direction may be groundbreaking for pending and future WHT refund cases, but it requires good cooperation within the group and a skilful presentation of the facts. Demonstrating effective sharing of personal and asset substance may pose real challenges for corporate groups – not only in terms of effectively allocating personnel and other resources (e.g. office space, IT, know-how) among companies actually using them, but also in documenting such arrangements convincingly for the tax authorities. The strength of this evidence will determine whether beneficial owner status is recognised when applying the shared substance concept.

The fact that an entity relies on shared personal and asset substance does not exempt it from meeting the BO definition requirements – the entity must still:

• not act as a payment intermediary;
• receive the payment for its own benefit;
• conduct genuine business activity.

As the Ministry of Finance points out, determining that a company relies on shared substance in a way that evidences genuine business activity in respect of the analysed payment is a condition for correctly verifying compliance with the beneficial ownership clause.

How can we help?

Our team of WHT experts has extensive experience and practical solutions in this area. We provide support in adjusting internal procedures and processes necessary to properly document shared personal and asset substance within a group. Our support also covers:

• • determining the appropriate WHT treatment;
  • assessing personal and asset substance in line with the current guidance;
  • obtaining opinions on the application of WHT reliefs;
  • assistance in potential tax audits.