WHT explanations – have holding companies finally been understood in terms of withholding tax?

In July 2025, the Minister of Finance published long-awaited tax explanations regarding withholding tax (WHT) [hereinafter: Explanations]. They were intended to dispel interpretative doubts related to the concept of “beneficial owner” and to explain how to apply reduced tax rates or exemptions in relation to dividends, interest, or royalties, including specifying the conditions for refusing to apply “preferences” in withholding tax.

Experience to date shows that taxpayers with a specific business profile or tax residence, i.e., holding companies, financial companies, including group treasuries and investment funds, resident in countries that are financial and holding centers, such as Luxembourg, the Netherlands, Cyprus, and Malta. Such entities were most often accused of not conducting actual business activity, having insufficient movable and fixed assets, and outsourcing services on a large scale.

The new Explanations – although in some respects they may contribute to softening the current approach of the tax authorities – in others may reinforce their unfavorable view.

Milder requirements, but with reservations

Holding companies are entities whose main activity is not production, services, or trade, but rather the ownership and creation of value, the management of shares or stocks in other companies, or investment activities on financial markets in various instruments of that market. Their activities focus on investing, supervising, and managing the assets or capital structure of the group.

Thus, holding companies do not need extensive assets and personnel—often, smaller resources are sufficient, as long as they are proportionate to their actual economic function. The Minister of Finance, which should be viewed positively, noted in the Explanations that the requirements regarding the “actual nature of the business” should be less stringent for holding companies than for typical operating companies.

According to this approach, it may be sufficient to have suitably experienced staff who are actually involved in the company’s activities and equipped with the necessary expertise and basic office infrastructure. However, the Explanations still seem to uphold the view that there should be an “adequate” personnel and asset base or that the costs associated with the company’s operation by external entities should be “adequate.” “Adequate” does not necessarily mean market-based! Meanwhile, outsourcing of services and the often relatively lower costs associated with it are, one might say, typical for holding companies, i.e., market-based, and therefore also “adequate”.

The economic risk criterion – too narrow a measure of reality

The Minister of Finance places great emphasis on verifying whether the costs incurred by the holding company indicate that it actually bears economic risk adequate to the nature of its business. This includes, among other things, an analysis of the proportionality of expenses to the scale of operations, or the occurrence of costs related to financial risk, such as exchange rate differences or hedging costs.

According to the Ministry of Finance, the independence of a holding company is evidenced by, among other things:

• • having and operating its own bank accounts,
  • no separate accounts for specific revenues,
  • incurring operating costs from a single common pool of funds,
  • no corporate restrictions preventing day-to-day management decisions.

Consequently, a company whose organizational structure or financing method prevents it from participating independently in economic transactions cannot be considered an entity actually conducting business activity.

Not all holding companies are the same

However, the fact that these criteria do not always correspond to the reality of holding companies’ business raises concerns.

Some of them actually perform an active management function: they control investments, make strategic decisions, employ staff, maintain offices, and incur operating costs. In such cases, the assessment of their “actual activity” should not raise any doubts.

However, many holding companies operate in a completely passive manner—they hold shares in subsidiaries but are not involved in their day-to-day operations. Their costs are low (e.g., accounting, auditing, corporate fees), and strategic decisions are made at a higher level of the group. From the perspective of the Explanations, such a business model may be considered too “unreal,” even though it is fully consistent with the economic function of a holding company.

The Minister of Finance therefore seems to expect that a holding company not only owns assets, but also manages them in an operational manner, which in practice may lead to an artificial requirement for “pretend” activity—taking actions that make no economic sense solely to meet formal criteria. This, in turn, may also meet with disapproval from both the tax authorities and selected provincial administrative courts, whose case law already refers to the concept of a “partially artificial structure.”

Specific nature of the business – only partially taken into account

Although tax explanations are not a source of law, in practice they serve as an informal handbook of conduct for tax authorities. The problem, however, is that the “reality” of economic activity has been defined in the Explanations in a way that seems to exclude the business conducted by some holding companies.

A holding company does not, by definition, conduct intensive operational activities. Its role is to consolidate capital, manage investments, and distribute financial resources within the group. The expectation that it will bear economic risk in the sense typical for operating companies is therefore unfounded (which does not mean that a holding company does not bear the risk associated with its own operations).

Requirements such as “independent decision-making in business transactions” or “bearing risk-related costs” may be inherently difficult to meet, not because the holding company does not conduct actual business, but because its activities are of a completely different economic nature.

Questionable link to the beneficial owner condition

Given the functions performed by companies whose activities are based on holding and managing shares in other companies, the rules for applying preferences related to dividend payments are particularly important for them.

In this context, it is worth noting the passages in the Explanations in which the Minister of Finance suggests that the application of the dividend exemption under Article 22(4) of the CIT Act is conditional on the recipient having the status of “beneficial owner.” However, this position is difficult to consider correct.

Neither the wording of this provision nor the content of the Parent-Subsidiary Directive (2011/96/EU) indicate that the possibility of applying the exemption is conditional on the fulfilment of this condition. The inclusion of such a requirement (previously applied in practice by tax authorities) in the Explanations therefore constitutes an unjustified extension of the conditions for applying the mandatory dividend tax exemption, which has no basis in either national or EU law.

Conclusions

The 2025 WHT Explanations are a step towards streamlining the application of the rules, but they do not solve the fundamental interpretation problems concerning holding companies. Although the Minister of Finance has recognized the need to adapt the business substance requirements to the specific nature of holding companies, he still defines the concept of “real economic activity” too narrowly.

As a result, holding companies—especially those performing purely ownership functions—are still at risk of being denied the tax preferences to which they are entitled, even though they operate in an economically justified manner.

In the long term, this interpretation may weaken Poland’s attractiveness as a business location for international groups, as the practice of applying withholding tax preference rules is particularly worrying and uncertain here compared to other European countries. This, in turn, will cause foreign investors to seek other, more predictable tax jurisdictions in which to establish their subsidiaries and conduct their manufacturing or commercial services activities, which will be most detrimental to the Polish economy.