Withholding Tax Agent Obligations
When a Certificate of Residence and a Statutory Declaration Are Not Enough
A Polish company distributes a dividend to its sole shareholder – a Cypriot holding company. It holds a certificate of residence, a statutory declaration that the conditions of the exemption are met, and a completed withholding tax compliance card. Is that sufficient to justify non-collection of WHT?
As the judgment of the Voivodeship Administrative Court in Kielce demonstrates, the answer is no – not where the documentary façade conceals a structure whose sole purpose is the avoidance of taxation. Moreover, the Court confirmed that the due diligence of the withholding tax agent extends beyond verification of the formal conditions of the exemption to encompass an examination of whether the negative conditions under Article 22c of the CIT Act are present – and rejected the application of the look-through approach to reduce the applicable rate.
India – Cyprus – Poland: Anatomy of an Artificial Holding Structure
The case concerned S. G., a Polish limited liability company based in Z. G. engaged in the rental and management of real property, whose sole shareholder (100 percent) was the Cypriot company T. H. LTD. In October and December 2020, S. G. distributed dividends to its Cypriot shareholder, applying the exemption under Article 22(4) of the CIT Act – the dividend withholding tax exemption – and collecting no WHT.
A customs and fiscal audit revealed a structure of corporate depth typical of optimisation schemes: effective control over the entire group was exercised by N. G. of India (holding 60 percent of S. Electrical Private Limited), who through that Indian company held 100 percent of the Cypriot T. H. LTD, which in turn was the sole shareholder of the Polish S. G. The ultimate destination of the funds was clear – dividends paid by the Polish company flowed from Cyprus to an Indian entity affiliated with the R. Instruments corporate group. Tellingly, all three companies (Polish, Cypriot, Indian) were registered nearly simultaneously, in the period August–September 2015.
Markers of a Shell Company – What the Tax Authority Looks For
The Kielce judgment is particularly valuable as a taxonomy of what tax authorities regard as markers of “façade” status in a Cypriot holding company. This catalogue merits close attention and should be treated as a negative checklist when planning or auditing an existing structure.
No physical presence: both registered addresses of T. H. LTD were addresses of the accounting firm A. P. K. Limited, which simultaneously served as independent auditor of the company’s financial statements. Photographs taken by the First Counsellor of the Polish Embassy in Nicosia revealed no indication of business activity at the premises.
Nominee director serving hundreds of companies: K. H. – director and secretary of T. H. LTD – held 183 managerial positions in companies registered in Cyprus (156 as director, 27 as secretary).
Exclusively passive income: the Cypriot company’s sole revenues consisted of dividends from its Polish subsidiary. It generated no income from operating activities whatsoever.
No employees or infrastructure: the company employed no personnel, incurred no lease costs, maintained no website or contact details. Its expenses were limited to administrative fees payable to the advisory firm.
Delegation of key governance rights: representation at general meetings of the Polish company and the exercise of voting rights were delegated by power of attorney to a Polish lawyer.
The WHT Compliance Card versus Genuine Due Diligence – Why Formal Verification Does Not Protect the Agent
G. defended itself by pointing to its possession of a certificate of residence, a statutory declaration of compliance with the exemption conditions, and a completed withholding tax compliance card (WHT card) in which the members of the management board had positively verified, inter alia, that T. H. LTD conducted genuine business activity, maintained premises, employed qualified personnel, and owned equipment.
The Court – relying on the now well-established jurisprudence of the Supreme Administrative Court (judgments II FSK 1333/22 of 6 October 2023 and II FSK 1082/22 of 6 May 2025) – rejected this position categorically. The agent’s obligation under Article 8 of the General Tax Ordinance is not confined to the verification of formal conditions (certificate plus declaration). The agent is required to ascertain all circumstances of legal significance for the computation of the tax liability – including whether the negative conditions under Article 22c of the CIT Act are present. In other terms: whoever applies the exemption must verify that no circumstances exist which would disapply it.
The Court emphasised that S. G. possessed, or could have possessed, the same documents as the tax authority – the shareholder’s financial statements, registry data, information on the management structure. Knowing these circumstances – the absence of personal and physical substance, the nominee directors, the exclusively passive revenues – the company should have recognised that the negative conditions of Article 22c were satisfied. The completion of the WHT compliance card with a positive substance assessment, in circumstances where the objective data contradicted that assessment, evidenced, in the Court’s view, an absence of genuine diligence.
It bears noting that the Court was aware ex officio of the circumstances surrounding an earlier dividend distribution (2019) by the same company (judgment of the Voivodeship Administrative Court in Kielce, I SA/Ke […] of 20 March 2025), in which S. G. did not even hold a valid certificate of residence at the date of distribution. This context merely reinforced the Court’s assessment that the company’s discharge of its agent obligations was purely perfunctory.
Denial of the Look-Through Approach and the 10 Percent Treaty Rate with India
The applicant simultaneously advanced two mutually inconsistent positions: on the one hand, that T. H. LTD was the beneficial owner of the dividend (and the exemption therefore applied); on the other, that since the actual beneficiary was an Indian company, the withholding tax should be determined at 10 percent pursuant to the Poland–India double tax treaty, rather than at 19 percent.
The Court rejected the argument predicated on the look-through approach, holding that this concept constitutes exclusively a de lege ferenda postulate with no basis in the law currently in force. No provision of the CIT Act, the General Tax Ordinance, or the Poland–India treaty authorises the tax authority to apply, to the taxation of a payment made to an entity with its seat in Cyprus, the provisions of a treaty concluded with India. Relying on the CJEU’s Danish cases, the Court added that where an abuse of rights has been established, the national authority is not even obliged to identify the actual beneficial owner.
Practical Lessons – How to Avoid WHT Agent Liability
The Kielce judgment articulates a standard that no agent employing a purely formalistic verification procedure will meet. A certificate of residence and a statutory declaration are necessary but not sufficient conditions. The withholding tax compliance card must reflect genuine verification – which means an actual analysis of the shareholder’s financial statements, cost structure, management arrangements, and capital affiliations.
For Polish companies distributing dividends to foreign entities, particularly those domiciled in jurisdictions traditionally associated with optimisation structures (Cyprus, Malta, Luxembourg, the Netherlands), this judgment should serve as an imperative to implement an enhanced due diligence procedure. An agent who knows – or ought to know – that the shareholder is a shell company bears liability for the uncollected tax, and cannot exclude that liability by reliance on documents prepared post factum or on concepts that have no standing in the Polish legal order.al).
Robert Nogacki – licensed legal counsel (radca prawny, WA-9026), Founder of Kancelaria Prawna Skarbiec.
There are lawyers who practice law. And there are those who deal with problems for which the law has no ready answer. For over twenty years, Kancelaria Skarbiec has worked at the intersection of tax law, corporate structures, and the deeply human reluctance to give the state more than the state is owed. We advise entrepreneurs from over a dozen countries – from those on the Forbes list to those whose bank account was just seized by the tax authority and who do not know what to do tomorrow morning.
One of the most frequently cited experts on tax law in Polish media – he writes for Rzeczpospolita, Dziennik Gazeta Prawna, and Parkiet not because it looks good on a résumé, but because certain things cannot be explained in a court filing and someone needs to say them out loud. Author of AI Decoding Satoshi Nakamoto: Artificial Intelligence on the Trail of Bitcoin’s Creator. Co-author of the award-winning book Bezpieczeństwo współczesnej firmy (Security of a Modern Company).
Kancelaria Skarbiec holds top positions in the tax law firm rankings of Dziennik Gazeta Prawna. Four-time winner of the European Medal, recipient of the title International Tax Planning Law Firm of the Year in Poland.
He specializes in tax disputes with fiscal authorities, international tax planning, crypto-asset regulation, and asset protection. Since 2006, he has led the WGI case – one of the longest-running criminal proceedings in the history of the Polish financial market – because there are things you do not leave half-done, even if they take two decades. He believes the law is too serious to be treated only seriously – and that the best legal advice is the kind that ensures the client never has to stand before a court.
