In the judgment of 3 January 2020 ref. III SA/Wa 1276/19 The Provincial Administrative Court in Warsaw ruled that a payer is not obliged to collect withholding tax on interest and discount payments on Eurobonds in a situation where he does not know the identity of the investors of the taxpayers and thus is not able to attribute to them the interest income, rate and amount of tax, as well as he does not have their contact details.
The judgment was issued on the basis of an interpretative case.
In the application for an individual interpretation, the taxpayer who is a bank indicated that it is a financial institution conducting banking activity, which includes, among others, granting financing in the form of credits and loans. It is obliged to ensure financing of its own bank assets. The relevant regulations provide for new liquidity and stable funding requirements (e.g. for the NSFR – Net Stable Funding Ratio). To this end, the Bank obtains financing on foreign markets, which results primarily from the economic account and business premises (e.g. size and liquidity of foreign debt securities markets). In addition, it was pointed out that raising financing currently takes two forms:
- issue of Eurobonds directly by the Bank,
- the issue of Eurobonds with a company established in France
At the same time the Bank explained that the lack of possibility to identify the Investor in securities results from the construction of trading in securities in organized trading. Issuers have no direct contact with Investors (i.e. debt securities holders who hold securities as a result of the recording of those securities in their individual securities accounts).
The issue of securities is addressed to foreign institutional investors who have sufficient free financial resources to sell the entire bond issue. The total value of interest paid to all Investors in the tax year will exceed PLN 2 million. The applicant stated in its application that it does not know the identity of the Investors and is therefore unable to attribute to them the interest income, rate and amount of the tax and does not have their contact details. Thus, the applicant has no information whether the sum of payments made to one Investor will exceed PLN 2 million.
The Court shared the Bank’s position, stating that it cannot be concluded from Art. 26.1, 2e and 2I of the TPL that a company is obliged to collect as a tax payer a flat-rate income tax on interest and discount payments on Eurobonds in a situation where it does not know the identity of the investors.
Author – Izabela Lipka – Tax consultant