The protocol amending the convention on the avoidance of double taxation between Poland and the Netherlands was signed on 29 October 2020.
Due to the ratification process, the changes are likely to come into force on 1 January 2022.
- INTRODUCTION OF THE REAL ESTATE CLAUSE
The protocol adds the so-called real estate clause, i.e. a regulation introducing taxation of income of a non-resident from the sale of shares in a company or from the sale of similar rights (such as interest in partnerships or funds), providing that at any time during 365 days preceding the alienation, more than 75% of the value of these shares or comparable interest was derived directly or indirectly from immovable property located in a given country.
The introduced clause is unusual because, as a rule, the share of immovable property in assets is verified as at the sale date or on the last day of the month preceding the sale, and not on any moment of the last 365 days. Additionally, the minimum share of immovable property in assets at the level of more than 75% is higher than in the Polish CIT Act and other Polish DTTs – the most common threshold applied is at least 50%.
Currently, until these changes come into force, the real estate clause does not apply and such income of Dutch tax residents is not subjected to taxation in Poland.
- PRINCIPLE PURPOSE TEST
The second important change is introduction of the principle purpose test (PPT). According to it, a benefit resulting from the convention shall not be granted in respect of an income if the tax benefit is one of the main objectives of the arrangement or transaction. In practice, therefore, it will be a test similar to the Polish GAAR clause, but applying to the benefits of the Polish-Dutch treaty.
- OTHER CHANGES
Other important changes to the convention are:
- introduction of the transparent entity clause, which regulates the place of taxation of income obtained through entities/ entities that are not taxpayers of income taxes;
- new rules regarding a permanent establishment and taxation of its income;
- additional exemptions for the income of pension funds.
- ENTRY INTO FORCE
Before its entry into force, the protocol must undergo a ratification process in both countries, and the countries must notify each other that ratification has been carried out. The protocol will enter into force on the last day of the third month following receipt of the last notification.
The changes introduced by the protocol will apply to tax years and taxable activities that occur on or after 1 January of the calendar year following the year in which the protocol enters into force. Due to the above procedure, the protocol will enter into force on 1 January 2022 at the earliest.
If you are interested in obtaining further information, or would like to discuss the impact of the above on your business activity please contact:
Justyna Bauta-Szostak Justyna.Bauta-Szostak@mddp.pl tel. + 48 502 241 631
Łukasz Kupień Lukasz.Kupien@mddp.pl tel. + 48 792 999 105
or your MDDP adviser.