Polish Lower Chamber Approves Proposals on Tax Treatment of Foreign-Controlled Companies
June 30 — Poland’s Sejm, the lower house of parliament, June 26 approved proposals to introduce guidelines to distinguish a foreign-controlled company for tax purposes, and approved Poland’s agreement for the avoidance of double taxation with the United Arab Emirates, as well as its tax information exchange agreements with Bermuda, the British Virgin Islands and the Cayman Islands.
Proposed amendments to the Corporate Income Tax law includes establishing guidelines to determine what constitutes a controlled foreign corporation (CFC) for tax purposes. The measures were proposed to counteract tax avoidance and prevent multinational corporations from shifting profits to low tax jurisdictions.
According to the amendments, the key factors to establish whether a company is a CFC for tax purposes include deciding:
• whether a Polish taxpayer holds at least 25 percent of shares or profits;
• whether 50 percent of the corporation’s income is derived from elements such as dividends, shares, liabilities and copyrights; and
• whether the corporation is registered and located in a jurisdiction with lower tax rates than Poland. This element will be determined by assessing whether at least one type of the foreign company’s passive income is subject to a tax rate that is at least 25 percent lower than the current corporate income tax or individual income tax rate applied in Poland, or is subject to a tax exemption or tax exclusion.
Parliament Approves Tax Treaties
The Sejm also gave statutory consent to ratify the protocol amending the double tax treaty between Poland and the UAE, as well as tax information exchange agreements signed by Poland with Bermuda, the British Virgin Islands and the Cayman Islands.
Poland signed its double tax treaty with the UAE in Abu Dhabi Jan. 31, 1993 and the amending protocol was signed Dec. 11, 2013 (254 ITM, 12/26/13). The protocol amends provisions on the taxation of capital gains from real estate, the taxation of royalties, and the elimination of double taxation.
Poland’s TIEA with Bermuda was signed Nov. 25, 2013 in London (235 ITM, 11/27/13). The TIEA is based on a model agreement developed by the Organization for Economic Cooperation and Development to allow requested information to be exchanged on criminal and other tax matters in accordance with the procedures agreed. In Poland, the agreement relates to taxes on income of legal persons and individuals.
The lower house also passed a law ratifying the TIEA and its attached protocol between Poland and the British Virgin Islands, which was signed in London on Nov. 28, 2013 (242 ITM, 12/6/13), enabling the two tax authorities to have greater ability to exchange information in accordance with internationally agreed standards.
In Poland, the agreement relates to income tax from legal persons, individuals, as well as goods and services. In regards to the British Virgin Islands, it will apply to taxes relating to income from wages and wealth. It will also apply to value-added tax in the BVI if this is implemented in the future.
The lower chamber also passed the law ratifying Poland’s TIEA with the Cayman Islands, which was signed in London Nov. 29, 2013 (243 ITM, 12/9/13).
Poland will complete its ratification process of the tax agreements once the laws have been approved by the Senate, the upper house of parliament, and signed by the president.
