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Korea (Rep.); Poland

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Protocol to treaty between Poland and Korea (Rep.) – details

Details of the Korea (Rep.) - Poland Income Tax Treaty (1991), signed on 22 October 2013, have become available. The maximum rates of withholding tax are:

- 10% on dividends in general, or 5% under 10% capital participation (unchanged);
- 10% on interest, subject to exceptions (unchanged); and
- 5% on royalties (10% under the current treaty).

In Article 8 (Shipping and air transport) paragraph 3 will be deleted, which additionally to the exemption of profits of an enterprise of a contracting state from the operation of ships or aircraft in international traffic also provided for the exemption from value added or similar tax in respect of such profits (article 3 of the protocol).

Article 9 (Associated enterprises) will be amended by extending the definition of associated enterprises to comply with the OECD definition and will include paragraph 2 of the OECD Model, which envisages that the states make appropriate adjustments to relieve economic double taxation (article 4 of the protocol).

Article 13 (Capital gains) will be amended by introducing a provision, which provides that gains derived by a resident of a contracting state from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state may be taxed in that other state (article 7 of the protocol).

Article 22A (Limitation on Benefits) will be introduced, upon which the treaty benefits provided for under articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital gains) and 22 (Other income) may be denied if the main purpose or one of the main purposes of the persons claiming those benefits was to take advantage of these articles by means of creating artificial transactions or business structures (article 10 of the protocol).

Both states will generally provide for the credit method for the avoidance of double taxation. In addition to the credit for withholding tax on dividends, both states grant an underlying tax credit in respect of the profits out of which such dividends are paid. In Poland, the underlying credit is granted where a resident of Poland owns at least 75% of the capital stock of the Korean company paying the dividends. In Korea (Rep.) the underlying credit is granted where a Korean resident owns at least 10% of the voting shares issued by or the capital stock of the Polish company paying the dividends (article 11 of the protocol).

Article 26 (Exchange of information) will be replaced by a new article on exchange of information between the contracting states that is in line with the OECD Model (article 12 of the protocol). Neither the treaty itself, nor the amending protocol contains provisions on the assistance in the collection of taxes.

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