Tax alert 6/2012
Deloitte | Amendment to the Poland-Luxembourg DTT
A protocol amending the Convention between the Republic of Poland and the Grand Duchy of Luxembourg for the avoidance of double taxation with respect to Taxes on Income and on Capital Gains (DTT) was signed on 7 June 2012.
The main changes provided by the Protocol include:
Introduction of the “real estate clause”, which states that the capital gains from alienation of shares deriving more than 50% of their value directly or indirectly from real estate property shall be taxable in the state where such property is situated.
This change will mainly impact the Luxembourgian entities holding shares (directly or indirectly) of Polish companies owning real estate in Poland. In case of sale of shares profit will be subject to the income tax in Poland (before the change such profit was not taxed in Poland and was fully attributable to Luxembourg tax jurisdiction where it usually benefited from tax exemption).
The above change should be taken into consideration by the groups of real estate companies having their holding companies in Luxembourg, since a new tax planning and restructuring processes should be implemented to eliminate the potential negative consequences caused by the real estate clause’s implementation. Deloitte can provide you with the solutions in this respect.
Additionally, the changes include:
- The possibility to refuse the benefits resulting from DTT to income received or derived under so called artificial arrangement (artificial structures).
- The reduction of withholding tax on interest and royalties from 10% to 5%.
- The change of the currently method of double taxation avoidance to certain categories of income - including dividends, interest and royalties received by Polish residents.
- Reduction of withholding tax on dividends to 0% if the dividend recipient holds directly at least 10% of shares in a subsidiary for an uninterrupted period of 24 months.
- Introduction of the full clause of exchange of information in tax issues.
Amendments introduced in the Protocol will be applicable to the taxes charged for any tax year starting on January 1 (or after such date) in the calendar year following the year in which the Protocol enters into force. Only with respect to withholding taxes, the provisions of the Protocol will apply to income gained on the first day, or after this date, of the second month following the date on which the Protocol enters into force.
If the ratification process is completed in 2012, the Protocol’s regulations will be applicable, as a rule, to the income derived since January 1, 2013. However, it may be possible that the ratification process will be more time consuming and will end in 2013, thus the changes would enter into force basically in 2014.
Should you have any questions regarding the amendments introduced by the Protocol and the influence of the Protocol on your group structures or business solutions, please do not hesitate to contact us.