The WHT pay & refund mechanism remains relevant in 2026 and is not limited to exceptionally large one-off transactions. In practice, it may also apply to recurring intragroup financing, dividend payments and royalties.
The PLN 2 million threshold remains crucial
Where the total amount of interest, royalties or dividends paid to a foreign related entity exceeds PLN 2 million in the payer’s tax year, withholding tax must generally be collected on the excess at the applicable domestic rate.
This mechanism may apply even where the substantive conditions for an exemption or reduced treaty rate are otherwise satisfied.
In practice, meeting the substantive conditions for a preference does not always mean that tax can automatically be left uncollected at the time of payment.
WH-OSC and a WHT preference opinion may prevent automatic collection
One way to avoid automatic collection under the pay & refund mechanism is for the payer to submit a WH-OSC statement.
In the statement, the payer confirms, among other things, that it holds the required documentation and is not aware of circumstances undermining the right to apply the relevant preference.
Another option is to obtain a WHT preference opinion in advance.
In both cases, it is important not only to select the appropriate mechanism but also to monitor deadlines and ensure that the supporting documentation remains current.
Beneficial ownership is often the key risk area
In practice, the main difficulty with pay & refund is often not calculating the PLN 2 million threshold, but determining whether the recipient satisfies the conditions for preferential WHT treatment.
A certificate of tax residence alone is not enough. The payer should exercise due diligence and have sufficient grounds to conclude that the recipient is the beneficial owner of the payment and carries out genuine economic activity connected with the income received.
Particular risk arises where the foreign recipient effectively acts as an intermediary and passes the funds on to another entity.
Formal documentation without a substance review may be insufficient
A review limited to formal documents may not provide adequate protection.
The application of WHT preferences may also require an assessment of the recipient’s economic substance, functions, assets, risks and actual ability to control and use the income received.
If this analysis is too superficial, the tax authority may challenge the application of an exemption or reduced WHT rate.
WHT is also a cash flow issue
Managing pay & refund should not be treated as a compliance exercise performed only once a year.
Ongoing monitoring of payment levels, WH-OSC deadlines, document validity and beneficial owner status may have a direct impact on the group’s liquidity.
Where preferential treatment cannot be applied at source, funds may remain temporarily tied up until the tax is recovered through the refund procedure.
The key conclusion is straightforward: pay & refund still requires active management in 2026. The PLN 2 million threshold and procedural deadlines are important, but so is a robust review of beneficial ownership and the recipient’s economic substance.
Please contact us if your organisation requires support in analysing its WHT obligations or developing a process for reviewing payment recipients.
We support businesses in analysing the pay & refund mechanism, reviewing beneficial owner status, preparing documentation for WH-OSC purposes and assessing eligibility for WHT exemptions or reduced rates. We also help structure the process to reduce the risk of unnecessary cash flow restrictions.
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