Global Tax Alert | 23 April 2014

Poland and Belgium sign tax treaty protocol

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On 14 April 2014, a protocol changing the convention between the Republic of Poland and the Kingdom of Belgium for the avoidance of double taxation and the prevention of fiscal fraud and evasion with respect to taxes on income and on capital (the treaty) was signed.

This Alert outlines the major amendments introduced to the treaty by the protocol.

Withholding taxes

The protocol changes the dividend withholding tax rates from 5% and 15% respectively to:

  • 0% if the beneficial owner of dividends has held (or will hold) directly for at least 24 months shares representing at least 10% of share capital of the payer, or
  • 0% if the beneficial owner of the dividends is a pension fund that meets further criteria, or
  • 10% in other cases.

The protocol also introduces the interest withholding tax rate of 0%, if interest is paid to a pension fund that meets further criteria.

Exemption method

The protocol changes the method of avoidance of double taxation in Poland to exemption, except for business profits, dividends, interest, royalties, capital gains, independent professionals’ income and pensions, on which tax paid in Belgium should be proportionally credited in Poland. Dividends received by a Polish entity from a Belgian subsidiary will be tax exempt in Poland provided that the Polish company has held (or will hold) directly for at least 24 months shares representing at least 10% of share capital of the Belgian dividend payer.

New treaty provisions

The protocol introduces a full exchange of information clause in line with the OECD Model Convention. It also introduces a limitation of benefits clause which denies applicability of treaty benefits, if income was paid or received in relation to an artificial structure (arrangement). There is no definition of the artificial structure (arrangement).

Effective date

The protocol will be in force after both countries exchange notes confirming ratification of the protocol according to the local legislative procedure. The provisions of the protocol will apply from:

  • 1 January of the year following the year it enters into force for withholding taxes;
  • The tax year starting 1 January or later of the year following the year it enters into force for other taxes;
  • 1 January or later in a year following the year of coming into force – to other taxes if provisions regarding a tax year do not apply.

The exact timeframe of the ratification process is not known yet.

Future Alerts will cover further developments.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Doradztwo Podatkowe sp. z o.o., Warsaw
  • Andrzej Broda
    +48 22 557 72 90
    andrzej.broda@pl.ey.com
Ernst & Young LLP, Polish Tax Desk, New York
  • Michał Koper
    +1 212 773 7012
    michal.koper@ey.com

EYG no. CM4366