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Amending Protocol to Tax Treaty between the Netherlands and Poland Entering into Force — Orbitax Tax News & Alerts

The amending protocol to the 2002 income tax treaty between the Netherlands and Poland will enter into force on 30 April 2022. The protocol, signed 29 October 2020, is the first to amend the treaty and includes the following changes:

  • The preamble is replaced in line with BEPS standards;
  • Article 1 (Persons Covered) is replaced to include new provisions on transparent entities or arrangements, providing that income derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State;
  • Article 3 (General Definitions) is updated with the addition of a new definition of the term "recognized pension fund";
  • Article 4 (Resident) is updated with a new definition of the term "resident of a Contracting State" and the addition of the provision that if a person other than an individual is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors, and if no agreement is reached, such person shall not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities;
  • Article 5 (Permanent Establishment) is updated in line with BEPS standards regarding activities of a preparatory or auxiliary character, the splitting of activities, and dependent agents;
  • Article 7 (Business Profits) is replaced with updated provisions;
  • Paragraph 2 of Article 10 (Dividends) is replaced, including the following withholding tax rates:
    • 0% if the beneficial owner is a recognized pension fund of a Contracting State that is generally exempt from tax in that State;
    • 5% if the beneficial owner is a company that directly holds at least 10% of the paying company's capital;
    • otherwise, 15%;
  • Article 11 (Interest) is amended to include recognized pension funds within the scope of withholding tax exemptions;
  • Article 13 (Capital Gains) is amended to provide that gains derived by a resident of a Contracting State from the alienation of shares in a company or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 75% of their value directly or indirectly from immovable property situated in that other Contracting State;
  • Article 18 (Pensions, Annuities and Social Security) is replaced with a new Article 18 (Pensions, Annuities and Social Security Payments);
  • Article 23 (Elimination of Double Taxation) is updated with new provisions regarding the application of the credit method by Poland in general and the application of the credit method by the Netherlands where Poland has exempted income under Articles 10 (Dividends) and 11 (Interest), as well as the amendment of references to Article 18;
  • Article 26 (Mutual Agreement Procedure) is replaced with updated provisions, including new arbitration provisions;
  • Article 27 (Exchange of Information) is replaced with updated provisions;
  • Article 28 (Assistance in the Collection of Taxes) is replaced with updated provisions;
  • Article 29 (Limitation of Articles 27 and 28) is replaced with a new Article 29 (Entitlement to Benefits), providing that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty;
  • Article 31 (Territorial Extension) is replaced with updated provisions; and
  • Several amendments are made to the final protocol signed with the treaty.

The amending protocol applies from 1 January 2023.