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Canada; Poland

25 July 2012

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Treaty between Canada and Poland – details

Details of the Canada – Poland Income Tax Treaty (2012), signed on 14 May 2012, have become available. The treaty was concluded in the English, French and Polish languages, each text having equal authenticity. The treaty generally follows the OECD Model.

The maximum rates of withholding tax are:

-   15% on dividends in general and 5% if the beneficial owner is a company that holds at least 10% of the capital in the company paying the dividends (article 10(1));
-   10% of interest in general (article 11(2)) and 0% in certain specific situations(article 11(3)); and
-   10% on royalties in general and 5% in respect of:
-   copyright royalties and other like payments in respect of production or reproduction of any literary, dramatic, musical or artistic work (but not including royalties in respect of motion picture films nor royalties in respect of work on film, videotape or other means of reproduction for use in connection with television broadcasting); and
-   royalties for the use of, or the right to use, any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement) (article 12(3)).

Deviations from the OECD Model include that:

-   article 4(4) provides that where a person other than an individual or a company referred to in paragraph 3 is a resident of both the contracting states then the competent authorities of the contracting state shall endeavour to determine by mutual agreement the residence of such a person taking into consideration the place of effective management, the place where it is constituted and other relevant factors;
-   article 6(4) provides for taxation in respect of income derived by a resident of Poland from alienation of immovable property in Canada;
-   article 7 follows the OECD Model (2008);
-   no transfer pricing adjustment can be made after the expiry of 9 years, except in the case of fraud, wilful default or neglect;
-   articles 13(6)and 13(7) preserve the taxing rights of the contracting states to tax, in case of an individual who ceases to be a resident in that contracting state subject to certain exceptions;
-   pensions and annuities arising in a contracting state and paid to a resident of the other contracting state are also taxable in the state in which they arise, subject to certain conditions (article 17(2) and (3));
-   article 17(5) includes a specific provision for war pensions and allowances and alimony payments;
-   article 20(3) (Other income) gives taxing rights to the other state, to tax income if it arises in its state, however the tax shall not exceed 15% in case of income from trusts (other than trusts to which contributions are deductible), whose beneficial owner is a resident of that state;
-   the convention shall not apply to any company, trust or other entity that is a resident of a contracting state, but beneficially owned or controlled, directly or indirectly, by one or more persons, who are not resident of that state and the tax imposed is substantially lower by that state (article 26(3)); and
-   the contracting states are allowed to impose an additional tax up to 5% on earnings attributable to a permanent establishment in that state or the earnings attributable to the alienation of immovable property situated in that state by a company carrying on trade in immovable property (article 26(5)).

Poland generally provides for the exemption-with-progression method to avoid double taxation. However, it follows the credit method in respect of income from alienation of immovable property, dividends, interest, royalties and income from trusts under article 20(4). Further, Poland is not obliged to eliminate double taxation in case of passive income derived by abusive arrangements.

Canada generally provides for the credit method to avoid double taxation.

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