New protocol to the tax treaty with Belgium

In approximately one year’s time, we will witness the effective coming into force of material changes concerning the rules for taxing dividend, interest, and licence fee payments from Belgium to Poland and vice versa. 

These changes are provided for in the protocol amending the double tax treaty between Poland and Belgium originally signed on 20 August 2001. On 7 January 2015, the legislative Act ratifying this protocol came into force in Poland; generally speaking, the protocol shall apply to income established or disbursed not earlier than on 1 January 2016.

Changes re dividends 

As regards trans border dividend payments, the new protocol abandons the classical 5/15 formula (i.e. maximum taxation at source) in favour of a single flat rate of 10% (under the previous rules, a 5% tax was collected on disbursements to entities other than a partnership without its own legal personality directly holding a stake of at least 25% in the company disbursing the dividend, and a 15% tax in other cases).

At the same time, the new protocol implements a full tax exemption for dividends where the entity entitled to such dividend is a company based in the other country which has held at least 10% of the shares in the company disbursing the dividend for an uninterrupted 24-month period, or where the entity entitled to the dividend is a retirement fund.

Interest and licence fees 

The maximum rate of tax collected at source on interest and licence fees remains unchanged at 5%, although the new rules extend a tax exemption to interest paid out to pension funds. The new rules also implement a minor adjustment of the definition of licence fees – this term now extends to any and all receivables associated with use, or the right to use, of any and all copyrights, patents, trademarks, designs or models, plans, and technological or production process secrets as well as with use, or the right to use, of industrial, commercial, or scientific assets and expertise (know-how). The expanded definition of licence fees shall also encompass any and all receivables accruing in connection with use, or the right to use, of any copyright in films for cinemas and in films and tapes for use on the radio and television.

Main exclusion with progression 

As far as methods for avoiding double taxation are concerned, Poland shall apply exclusion with progression as the basic method. Exceptions shall apply to revenue from establishments, dividends, interest, licence fees, capital gains, from pursuit of the liberal professions, and from retirement benefits – for these categories, the ordinary (i.e. proportional) crediting method shall apply.

Belgium, in its turn, shall apply the exclusion with progression method save for certain exceptions (such as interest and licence fees) for which ordinary crediting shall apply.

Exchange of tax information 

The amendments implemented by the new protocol also extend to procedures for bilateral communications and exchange of information. A significant addition to these rules is comprised in the new art 28a, whereunder benefits under the convention may be curtailed “if the income has been disbursed or received in connection with an artificial structure”.