The draft includes a list of examples of factors which may indicate that the direct recipient of a payment is not a beneficial owner (but rather acts as an “income administrator”), e.g.,:

• the entity realises a small margin on the payments made;
• the sole activity of the entity is the obtaining and forwarding of receivables;
• receivables are transferred to other entities within short time periods / at regular intervals;
• the entity does not reinvest the funds obtained in connection with received receivables;
• most of the entity's revenues are derived from cross-border financial payments made by related entities;
• significant items on the entity's balance sheet are related to foreign group entities;
• the entity is located in a jurisdiction with an extensive network of double taxation treaties or in a country which is highly ranked on the list of direct investments into Poland mainly due to cross-border financial payments rather than commercial or production activities.

Taking into account the nature of the real estate market, it is realistic to expect that the standard holding platforms operating in that market may tick at least some of the boxes in the above “black list”.

The tax authorities have also presented a strict meaning of the “business substance” / “genuine business activity” criteria (which also form an integral part of the concept of “beneficial ownership”). In particular, it has been explicitly stated that even if a given entity fulfills the minimum substance requirements in a given jurisdiction (in terms of the personnel employed etc.), it still does not mean that the structure is not artificial. For example, the authorities may perceive a given entity as artificial if it performs only a limited business activity (e.g. if the entity does not execute significant management functions in relation to its assets).

Specifically in relation to the financing functions, the draft guidelines indicate that the following factors need to be checked (inter alia) to determine whether the activity is genuine:

• whether the entity has an office (meaning physical space) and personnel;
• whether it covers expenses connected with its activities (e.g., pays for the office lease);
• whether it has a qualified management board;
• whether the loans provided are inter-connected with the loans obtained;
• whether the entity has sufficient equity to finance its operations;
• whether the entity acts independently / on its own behalf, etc.

Translating this into the real estate market, it would seem that while at least some of the conditions would be typically met by standard holding platforms (e.g., a professional management board), some may still lead to potential challenges (e.g. the condition referring to the links between the loans obtained and loans provided). Also, the concept of “acting independently” may be very subjective when considering operations performed within large capital groups.

The draft guidelines explicitly state that the “beneficial ownership” requirement should also apply to dividends and should be examined as part of due diligence.

However, one positive outcome from the draft is the conclusion that the fact that dividend income is exempt from tax at the level of the recipient does not automatically prevent the WHT exemption from applying in respect of the dividend payment (as long as the recipient is - as a rule - subject to tax and does not benefit from any general tax exempt regimes). As such, this should resolve certain major concerns raised recently by the tax authorities and administrative courts.

According to the draft guidelines, the “beneficial ownership” requirement should apply to every DTT - regardless of whether its wording specifically includes the “beneficial owner” clause.

For this purpose the local definition of “beneficial owner” should be followed.

The draft WHT explanations confirm that it is technical possible to apply the “look through” approach (even though it is not specifically provided for in the local tax law provisions). Nevertheless, it has also been specified that the tax authorities are not obliged to use this concept and that its applicability should be limited to situations where all of the following conditions are met:

• the use of an intermediary between the payer's country and the country of the actual beneficiary does not result in a reduction of withholding tax collected in the payer's country;
• the nature (type) of payment made between the payer and the foreign intermediary and between the intermediary and the actual beneficiary is the same;
• the entire structure or payment is not artificial.