United States Tax Alert - February 18, 2012
Overview of pending US-Poland treaty
On February 13, 2013, the United States and Poland signed a new income tax treaty (“pending treaty”) to replace the current treaty. The current treaty dates from 1974. The pending treaty reflects extensive redrafting of the current treaty. The most notable change is the addition of a comprehensive limitation on benefits (LOB) article to discourage treaty shopping. The LOB article in the pending treaty resembles LOB articles in newer US tax treaties with European countries, including a helpful “equivalent beneficiary” provision. In addition, much like the 2010 US-Hungary treaty, the pending treaty modernizes the current treaty to take account of US tax developments including the enactment of the Foreign Investment in Real Property Tax Act, the branch profits tax and the real estate mortgage investment conduit (REMIC) rules; Internal Revenue Code sections 877 (expatriating individuals) and 894(c) (treaty benefits for income derived through hybrid entities); the OECD Report on the Attribution of Profits to Permanent Establishments; and the elimination of independent personal services articles from tax treaties generally. The pending treaty does not provide for “grandfather” relief. Surprisingly, the treaty increases the permitted withholding tax on most interest from 0% to 5%.
The following is a brief comparison of selected provisions in the pending treaty with provisions in the current treaty, other recent US tax treaties and the 2006 US Model Income Tax Convention (the “US Model”).