Beneficial Owner of Interest and Preferential Withholding Tax Rate
The Look-Through Approach in Polish Case Law
I. Introduction: The Beneficial Owner Clause and Preferential WHT Rates
The interpretation of the beneficial ownership requirement in double taxation treaties has long presented considerable challenges for tax authorities, courts, and practitioners alike. The central question—whether the interposition of an intermediary in the payment chain necessarily precludes the ultimate beneficial owner from claiming preferential withholding tax rates—goes to the heart of international tax policy.
In its judgment of February 4, 2020 (Case No. I SA/Gl 1488/19), the Voivodeship Administrative Court in Gliwice annulled a tax ruling issued by the Director of the National Tax Information Service, which had denied a Korean financial institution the right to apply the preferential withholding tax rate of ten percent on interest income under the Poland-Korea Double Taxation Convention. The tax authority’s position rested on a narrow, literalist reading of the treaty’s beneficial owner clause. The Court, by contrast, held that such an interpretation was impermissibly pro-fiscal and inconsistent with the object and purpose of international tax agreements.
The Director of National Tax Information initially filed a cassation appeal with the Supreme Administrative Court, but subsequently withdrew it in September 2021. By order of October 28, 2021 (Case No. II FSK 1275/20), the Supreme Administrative Court terminated the cassation proceedings, thereby rendering the judgment final and binding.
II. Investment Structure: Trust-Type Fund as Vehicle for the Beneficial Owner of Interest
A. Korean Real Estate Trust Fund
The taxpayer, a Korean limited company operating as a licensed financial institution and tax resident of the Republic of Korea, had invested in a Korean real estate trust-type fund. This fund had been established by a licensed asset manager pursuant to the Korean Financial Investment Services and Capital Markets Act. The asset manager acquired from the Luxembourg branch of a German bank certain receivables arising under a credit agreement with a Polish joint-stock company (the “Debtor”).
The fund constituted a private investment vehicle of the trust variety, lacking separate legal personality—a form commonly employed in Korea for collective investment purposes, particularly by institutional investors acquiring assets abroad.
B. Interest Payment Flow Through Intermediaries and Beneficial Ownership
Given its lack of legal personality, the fund could neither hold assets in its own name nor appear as a party in legal proceedings. Asset management functions were discharged by the manager, while legal title to the assets vested in the custodian—the trustee bank—which was obligated to acquire and transfer assets in accordance with the manager’s instructions.
Repayment of interest by the Polish Debtor occurred through an agent—the Luxembourg branch of the bank that had originally extended the credit. Interest payments were remitted by the Debtor to this bank’s account, whence they were transferred to the account of the trustee bank acting on behalf of the fund. The agent bank possessed no authority to dispose freely of these funds; its involvement served merely to facilitate settlement.
C. Tax Transparency and Withholding Tax on Interest
Under Korean law, the fund was not subject to income taxation—it was fiscally transparent. The tax liability in respect of income earned through the fund attached instead to its beneficiaries. Each investor received a beneficiary certificate specifying its proportionate interest in the fund’s profits. Profit distributions occurred on a current basis, proportionate to each investor’s participation.
Korean tax authorities could issue a certificate of residence for the fund only where all investors were Korean tax residents. Such a certificate, however, did not confirm that the fund was a tax resident subject to worldwide income taxation in Korea.
III. The Dispute: Beneficial Owner’s Right to Preferential Withholding Tax Rate
A. Taxpayer’s Position: Beneficial Owner of Interest Entitled to Reduced WHT
The Korean company sought confirmation that it—as the beneficial owner of interest within the meaning of Article 4a(29) of the Polish Corporate Income Tax Act—was entitled to the preferential withholding tax rate under Article 11(2) of the Poland-Korea Convention. The taxpayer’s argument proceeded along three principal lines.
First, given the fund’s tax transparency, the relevant inquiry must focus on identifying the taxpayer to whom the interest is paid. Since the fund was not a taxpayer, the tax liability attached to its beneficiaries, including the Korean company holding a certificate of tax residence.
Second, the company satisfied all elements of the statutory definition of beneficial owner: it received the payment for its own benefit and independently determined its disposition, bearing the economic risk; it was not an intermediary or fiduciary obligated to transmit the payment to another party; and it conducted genuine economic activity in Korea.
Third, the entitlement to preferential WHT rates should be analyzed with respect to the beneficial owner, even where payment is not made directly to that party but through an intermediary—consistent with the look-through approach.
B. Tax Authority’s Denial of Preferential Rate
The Director of National Tax Information acknowledged that the fund was fiscally transparent, that the company was subject to limited tax liability in Poland, and that it was the beneficial owner of the interest. Nevertheless, the authority concluded that the preferential withholding tax rate did not apply, because Article 11(2) of the Convention conditions the benefit on the “recipient of the interest” being simultaneously the “beneficial owner.”
In the authority’s view, the recipient was the trustee bank, while the beneficial owner was the Korean company. This lack of identity between recipient and owner precluded application of the reduced WHT rate.
IV. Court’s Analysis: Beneficial Owner as Ultimate Recipient Under the Look-Through Approach
A. Interpretation of the Beneficial Owner Clause Under the Vienna Convention and OECD Commentary
The Court emphasized that double taxation conventions, as instruments of international law, must be interpreted in accordance with the principles codified in the Vienna Convention on the Law of Treaties of 1969. Article 31(1) provides that treaties shall be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”
The Court recognized the significant interpretive role played by the OECD Model Tax Convention and its Commentary. The term “beneficial owner” is defined neither in the OECD Model Convention nor in the Poland-Korea treaty. The Commentary, however, indicates that this concept “is not employed in a narrow, technical sense, but should be understood in context and in light of the Convention’s object and purpose—namely, the avoidance of double taxation and the prevention of tax evasion.”
B. The Look-Through Approach: Ultimate Recipient, Not Direct Payee
The Court held that the proviso in Article 11(2)—that “the recipient of the interest must be its owner”—cannot be construed as requiring direct payment to the beneficial owner. The proper interpretation—consistent with the look-through approach—is that the person who ultimately receives the interest must simultaneously be its owner.
The concept of “recipient of interest who is its owner” cannot encompass a situation in which the recipient obtains the payment not for its own benefit, but as a party obligated to transmit it to another person. The beneficial owner of interest must therefore be simultaneously the ultimate recipient—the inquiry is not whether the “recipient” is the direct payee, but whether, as the factual (rather than conduit) recipient, it is the person entitled to the interest.
C. Application: Preferential WHT Rate for the Beneficial Owner
The Court emphasized that the Korean company had represented that it was the beneficial owner of interest within the meaning of Article 4a(29) of the Corporate Income Tax Act—and was therefore both owner and ultimate recipient. The fund’s role consisted solely in transmitting profits derived from interest to its beneficiaries; it possessed no authority to determine independently the disposition of amounts received.
Since the manager’s authority over fund assets did not extend to the distribution of interest-derived profits (which occurred automatically), the profits distributed in accordance with the company’s participation satisfied the requirements of Article 11(2). The fund functioned merely as a technical intermediary. The preferential withholding tax rate therefore applied to the company as the beneficial owner of interest.
V. Confirmation in 2025 Ministry of Finance Tax Explanations: Look-Through Approach as Standard
A. Official Endorsement of the Look-Through Approach
The position articulated in the Gliwice judgment received comprehensive endorsement in the Tax Explanations issued by the Minister of Finance on July 3, 2025, concerning application of the beneficial owner clause for withholding tax purposes. These Explanations, issued pursuant to Article 14a(1)(2) of the Tax Ordinance and conferring legal protection upon taxpayers and withholding agents who conform to them, expressly confirm the judgment’s central propositions.
The Explanations provide that the beneficial owner concept “should not be understood in a narrow, technical sense, but should have a meaning that serves to prevent tax avoidance” and that “an economic approach should be applied in interpreting the beneficial owner requirement.”
B. Look-Through Approach in Practice: Applying Preferential WHT Rates
The Explanations introduce and comprehensively regulate the look-through approach (LTA), which permits application of preferential withholding tax rates or exemptions “even where the beneficial owner of the payment is not its direct recipient, but receives it through intermediaries.” The Ministry of Finance thus explicitly accepts that the presence of a technical intermediary in the payment chain does not automatically preclude entitlement to preferential rates.
The Explanations confirm that “the beneficial owner of a payment possesses not so much strict formal legal control, but rather economic control over the payment”—the central thesis of the Gliwice judgment. What matters is not the technical aspect of fund flows through intermediary accounts, but identification of which entity constitutes the ultimate economic beneficiary.
In light of the 2025 Explanations, the Gliwice judgment appears as a pioneering decision that anticipated the official position of the tax administration by several years.
VI. Significance for Application of Preferential Withholding Tax Rates
A. Functional Interpretation of the Beneficial Owner Clause
The judgment confirms that the beneficial owner clause in double taxation conventions should be interpreted purposively, with due regard to the object of such agreements—elimination of double taxation and prevention of abuse. The clause does not serve automatically to exclude from preferential WHT rates all situations in which an intermediary participates in the transaction.
The determinative inquiry concerns whether the party invoking the preference is the beneficial owner of interest—whether it receives the payment for its own benefit, may dispose of it freely, and bears the associated economic risk. The technical mechanics of fund flows through intermediary accounts should not be dispositive of entitlement to preferential withholding tax rates.
B. The In Dubio Pro Tributario Principle and Pro-Fiscal Interpretation
The Court expressly rejected the pro-fiscal interpretation, recalling the principle codified in Article 2a of the Tax Ordinance—that irresolvable doubts concerning the content of tax law provisions shall be resolved in favor of the taxpayer (in dubio pro tributario). Acceptance of the authority’s interpretation would render inapplicable all double taxation conventions containing the beneficial owner clause in transactions involving intermediaries.
C. Practical Implications for International Investment Structures
The judgment carries significant implications for international investment structures employing trust-type funds, partnerships, and other fiscally transparent vehicles. It confirms that tax transparency of an investment vehicle does not preclude its beneficiaries from claiming preferential withholding tax rates, provided they satisfy the beneficial owner criteria and hold tax residence in a contracting state.
VII. Conclusion: Beneficial Owner of Interest Entitled to Preferential WHT Rate Under Look-Through Approach
The judgment of the Voivodeship Administrative Court in Gliwice represents a significant contribution to the discourse on application of the beneficial owner clause in Polish law. It confirms that the phrase “recipient of interest who is its owner” should be understood as requiring that the person who ultimately receives the interest be simultaneously its beneficial owner—consistent with the look-through approach—not as mandating direct payment without any intermediary involvement.
States conclude double taxation conventions to protect their taxpayers from excessive fiscal burdens and to enable utilization of preferential withholding tax rates that reduce the cost of conducting business. Tax authorities must respect this entitlement—interpreting treaty provisions in good faith, in accordance with their object and purpose. Taxpayers confronted with pro-fiscal interpretations retain the right to challenge such decisions before administrative courts and vindicate their positions through tax litigation.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
