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Poland – United States Convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income

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On February 13th 2013 in Warsaw, Undersecretary of State in the Ministry of Finance Maciej Grabowski and U.S. Ambassador in Poland Stephen Mull signed the “Convention between the Republic of Poland and the United States for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income”. The Convention will replace the agreement between the Government of the Polish People’s Republic and the Government of the United States of America for the avoidance of double taxation signed in Washington on October 8th 1974.

It seems that the ratification of the Convention shall not be earlier than the end of 2013. This would mean that it will apply to income earned in 2014 at the earliest.

The most important changes relate to the following issues:

1. The rules of determining the Fiscal Residence

2. Changes in the definition of permanent establishment

3. Income from real property

4. Business Profits

5. Shipping and Air Transport

6. Dividends

7. Interest

8. Royalties

9. Capital Gains

10. Wage labor

11. Artists and Athletes

12. Pensions and similar benefits

13. Income from holding Governmental Functions

14. Students and Trainees

15. Methods of Relief from Double Taxation

 

It should be noted that the new agreement contains certain provisions that are now standard in the Polish agreements on the avoidance of double taxation, but which have not yet been included in an agreement with the United States. For example, regulations on the taxation of the remuneration of the directors (typically claimed as tax at source, in the country of the residence of the given company). It is worth mentioning that the new agreement made very comprehensive regulations “limit contractual benefits” (Article 22 of the new Agreement). They are mainly to prevent the phenomenon of so-called treaty shopping. The new agreement also contains a full exchange clause of information consistent with the OECD standards.