The income tax treaty between Brazil and Poland was signed on 20 September 2022. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Brazilian federal income tax and the social contribution on net profit and covers Polish personal income tax and corporate income tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities will determine the person's residence for the purpose of the treaty through mutual agreement, having regard to its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, such person will not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such a manner as may be agreed upon by the competent authorities of the Contracting States.

Withholding Tax Rates

• Dividends - 10% if the beneficial owner is a company that has directly held at least 25% of the paying company's capital throughout an uninterrupted 365-day period that includes the day of the payment; otherwise, 15%
• Interest - 10% if the beneficial owner is a bank and the loan or credit has been granted for at least five years for the financing of the purchase of equipment or of infrastructure projects as well as for the financing of public works; otherwise, 15%
• Royalties - 15% on royalties paid for the use of or the right to use trademarks; otherwise, 10%
• Fees for Technical Services (managerial, technical, or consultancy) - 10%

Note - The final protocol to the treaty provides that interest for the purpose of Article 11 (Interest) includes interest paid as "interest on the company's equity" ("juros sobre o capital próprio") in accordance with Brazilian law.

The final protocol also provides that Article 13 (Fees for Technical Services) covers payments of any kind received as consideration for the rendering of technical assistance.

MFN Clause

The final protocol to the treaty includes an MFN clause providing that if, after the date of signature of the treaty, Brazil agrees in a convention or agreement with any Member State of the OECD, excluding any state in Latin America, to rates that are lower (including any exemption) than the ones provided in subparagraph b) of paragraph 2 of Article 11 (15%) and subparagraph a) of paragraph 2 of Article 12 (15%) of the treaty, then the rates provided in the mentioned provisions of the treaty shall be replaced by the rate of 10%, from the time such lower rates (or exemptions) enter into force and for as long as such rates are applicable.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
• Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in the other State; and
• Gains from the alienation of any property other than that referred to above that arise in the other State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 28 (Entitlement to Benefits) includes a number of provisions regarding a resident's entitlement to benefits under the treaty, including that if the legislation of a Contracting State contains provisions, or introduces such provisions after the signing of the treaty, whereby offshore income derived by a company of a Contracting State from:

• shipping;
• banking, financing, insurance, investment, or similar activities, or
• operating as a holding company, co-ordination center, or similar entity providing administrative services or other support to a group of companies that carry on business primarily in third States,

is not taxed in that State or is taxed at a rate of tax which is lower than 75% of the rate of tax that is applied to income from similar onshore activities, the other Contracting State shall not be obliged to apply any limitation imposed under the treaty on its right to tax the income derived by the company from such offshore activities or on its right to tax the dividends paid by the company.

Article 28 also includes the provision that a company that is a resident of a Contracting State and derives income from sources within the other Contracting State shall not be entitled in that other State to the benefits of the treaty if, at that time or on at least half of the days of a twelve-month period that includes that time, persons who are not residents of the first-mentioned State or that are not entitled to benefits of the treaty own, directly or indirectly, at least 50% of the shares of the company. However, the preceding shall not apply if that company has its principal class of shares regularly traded on one or more recognized stock exchanges, or carries on in the Contracting State of which it is a resident a substantive business activity other than the mere holding of securities or any other assets, or the mere performance of auxiliary, preparatory or any other similar activities in respect of other related entities.

Article 28 further includes the provision that the benefits of the treaty will not apply to an item of income of an enterprise of a Contracting State derived from the other State if:

• the first-mentioned State treats the income as attributable to a permanent establishment of the enterprise situated in a third jurisdiction;
• the profits attributable to that permanent establishment are exempt from tax in the first-mentioned State; and
• the tax imposed in the third jurisdiction on the income is less than 75% of the tax that would be imposed in the first-mentioned State on that item of income if that permanent establishment were situated in the first-mentioned State.

However, it is provided that if a resident of a Contracting State is not entitled to benefits as per the above three provisions, the competent authority of the Contracting State in which the benefits are denied may, nevertheless, grant the benefits of the treaty, or benefits with respect to a specific item of income, taking into account the object and purpose of the treaty, but only if such resident demonstrates to the satisfaction of such competent authority that neither its establishment, acquisition, or maintenance, nor the conduct of its operations, had as one of its principal purposes the obtaining of benefits under this Agreement.

Lastly, Article 28 includes a general anti-abuse provision, which provides 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 would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force three months after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.