The Poland-Taiwan income tax agreement is expected to become effective on January 1, 2017, after the Polish Sejm (lower chamber of parliament) passed a draft law on the ratification of the pending tax treaty on December 15 and the Senate (upper chamber of parliament) accepted that law on December 21.
On October 21, officials from Poland and Taiwan signed an income tax agreement. (Prior coverage.) Since there have been no formal diplomatic relations between Poland and Taiwan, the treaty was officially concluded between the Warsaw Trade Office in Taipei and the Taipei Economic and Cultural Office in Warsaw.
In general, the treaty follows the OECD model tax convention regarding taxes on income, with a number of significant deviations. For taxes covered, the treaty in article 2 refers to the taxes in the territory where the tax law administered by the respective ministries of finance is applied.The same references are used for the definition of the term „territory” in article 3 and are followed throughout the treaty. Following the standard language of the OECD model tax convention, article 5 provides that the building site, construction, or installation project constitutes a permanent establishment only if it lasts more than 12 months (article 5.3).
The withholding taxes on cross-border dividends and interest payments will be limited to 10 percent of the respective gross amounts (articles 10 and 11), while the withholding taxes on cross-border royalty payments will be limited to 3 percent for royalties paid as consideration for the use of, or the right to use, industrial, commercial, or scientific equipment and to 10 percent of the gross amount of the royalties in all other cases (article 12).
For capital gains, the treaty includes a real-estate-rich company clause, providing that gains derived by a resident of a territory from alienation of shares deriving more than 50 percent of their value directly or indirectly from immovable property situated in the other territory may be taxed in that other territory (article 13.4).
Unlike the OECD model tax convention, the treaty includes rules dealing with independent personal services, providing the right of a territory to tax income derived by a resident of another territory if that resident has a fixed base regularly available to him in the first territory or his stay in that territory exceeds in the aggregate 183 days in any 12-month period commencing or ending in the calendar year concerned (article 14).
The treaty provides for an ordinary credit to be applied in both contracting territories as the method for avoiding double taxation of income (article 22).The treaty contains a special provision regarding limitation on benefits (article 23).
The treaty is accompanied by an additional protocol, which stipulates that the references to the Polish personal income tax and Polish corporate income tax will include the Polish tonnage tax.The protocol also states that Taiwanese resident individuals are liable to tax only for income from sources in Taiwan in accordance with the Income Tax Act, if those residents need not include their overseas income in accordance with the Income Basic Tax Act.
The treaty will apply to income derived on or after January 1 in the calendar year following the year in which the treaty enters into force.
Janusz Fiszer, associate professor, Warsaw University School of Management, and partner, the GESSEL Law Office, Warsaw
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