Grounds for consideration of compliance Article 24a the Corporate Income Tax Act and Article 30f the Personal Income Tax Act with international law is a constitutional hierarchy of sources of law commonly in force.
According to Article 87(1) The Polish Constitution is based on: Constitution, laws, ratified international agreements and regulations.
However, according to Article 91(1) The Constitution of the Republic of Poland has ratified the international agreement, after its publication in the Official Journal of the laws of the Republic of Poland, forms part of the national legal order and is directly applicable, unless its application is subject to the law.
According to Article 91(2) The Constitution of the Republic of Poland, an international agreement ratified with the prior consent expressed in the Act, takes precedence over the Act if that law cannot be reconciled with the Agreement.
According to Article 90(2) Constitution of the Republic of Poland Act approving the ratification of the international agreement in question Under section 1, is passed by the Sejm by a majority 2/3 by at least half of the statutory number of Members and by the Senate by a majority 2/3 Votes in the presence of at least half of the statutory senators.
With respect to Article 91(2) The Constitution of the Republic of Poland should be noted that, under the procedure provided for in this provision of the Constitution of the Republic of Poland, all agreements on the avoidance of double taxation concluded by Poland have been ratified and therefore these agreements have priority over laws in the event of conflict with their provisions.
Subject to the provisions Article 7(1) Double taxation agreements[1] relating to corporate income taxation, company profits one Contracting States shall be taxable only in that country unless the undertaking operates In the second to a Contracting State, the activity through an establishment located there.
Regulations Article 7 and Article 5 double taxation agreements are an expression of the generally accepted principle in international tax law that as long as the business activities of the company one States don't constitution In the second State of establishment, it cannot be considered that the undertaking is engaged in economic life second States to the extent that they justify subjecting them to tax jurisdiction.
If the company operates through a plant located In the second, to a Contracting State, then its profits may be taxed In the second the country, however, only to the extent to which they can be attributed to that establishment. The term ‘establishment’ is defined under Article 5 individual double taxation agreements concluded by Poland.2 Following the OECD Model Convention Article 5(1) individual double taxation agreements define the "establishment" as a permanent establishment through which the business is carried out entirely or partially. Under regulation Article 5(2) and (3) Polish double taxation agreements include in particular: the place of management, branch, office, factory, workshop, mine, quarry or other place of extraction of natural resources, construction or assembly which lasts longer than 12 months. A catalogue of exemptions from the term "establishment" has been concluded under Article 5(4) double taxation agreements. Under the above provision, the term "establishment" does not include:
- • the use of establishments which are exclusively used for the storage, display or issue of goods or goods belonging to the undertaking;
- • maintain stocks of goods or goods belonging to the undertaking solely for the purpose of storage, display or issue;
- • the holding of stocks of goods or goods belonging to the undertaking solely for processing by another undertaking,
- • maintaining a permanent establishment exclusively for the purchase of goods or goods or for the collection of information for the undertaking,
- • maintaining a permanent establishment for the sole purpose of carrying out any other preparatory or auxiliary activity for the undertaking,
- maintain a permanent establishment solely for the purpose of carrying out any of the activities in question Under point 1-6 above, provided that the total activity of that establishment resulting from such a combination of activities is preparatory or ancillary.
Subject to Article 5(5) double taxation agreements, except for an independent representative within the meaning of the provisions section 6, acting on behalf of an undertaking and having and habitually exercising the power of attorney to conclude contracts in a Contracting State on behalf of an undertaking, that undertaking shall be deemed to have an establishment in that State, in respect of any activity which that person undertakes for an undertaking, unless the activities carried out by that person are limited to the activities listed above Under section 4, which, if they were carried out through a permanent establishment, would not render that establishment an establishment.
By sound Article 5(6) double taxation agreements shall not be considered to have an undertaking in a Contracting State solely because it carries out activities in that State by a broker, a general commission or by any other independent agent, provided that they are acting in the course of their ordinary activities.
Consequently, in the light of the above regulations, an independent agent acting for the company one Contracting State In the second the contracting State does not constitute a "establishment" of this company including second country.
Provisions Article 7(1) individual double taxation agreements therefore provide for the exclusive right to tax profits made by an undertaking in its country of residence, confirming the principle that the undertaking one States cannot be taxed In the second country, unless it leads in this second the country of commercial or industrial activity through an establishment situated in that country (i.e.
where the foreign activity of that undertaking is characterised by certain characteristics the existence of which constitutes an establishment in accordance with the provisions of the Article 5 double taxation agreements).
These regulations Article 7 and Article 5 double taxation agreements are an expression of the generally accepted principle in international tax law that as long as the business activities of the company one States don't constitution In the second State of establishment, it cannot be considered that the undertaking is engaged in economic life second States to the extent that they justify subjecting them to tax jurisdiction.
The purpose of the principle of taxing the profits of the company only in the State of residence is to prevent double taxation of the same income, for the time being first in the State of the tax residence of the company, and for the time being second in the country from which that undertaking derives certain profits or where the person controlling the undertaking is established or resident or has a stake in it.
Avoidance of double taxation of the same income occurs by stating that if the activity of an undertaking established In one of the Contracting States does not constitute this second State of establishment, then the right to tax the profits of that undertaking is granted only to the State of residence of that undertaking.3
Meanwhile, by law Article 24a(1) the Corporate Income Tax Act, in relation to the wording section 2, section 3 point 3 that provision and also on the ground Article 24a(4) the Corporate Income Tax Act and twin regulation Article 30f(1) the Personal Income Tax Act Content section 2, section 3 point 3 the provision and on the ground Article 30f(5) the Personal Income Tax Act, the profits of the controlled foreign company would be taxed in Poland at the rate of income tax applicable in Poland, with the technical transfer of the tax to the level of the natural or legal person who is a shareholder (shareholder) of that company or controlling it in at least 25%.
This, in turn, would mean that the application of the abovementioned provisions the Corporate Income Tax Act or the Personal Income Tax Act would lead to taxation in Poland of profits achieved by a foreign controlled company, contrary to the provisions of the Article 7(1) a double taxation agreement concluded by Poland with the State of the tax residence of that company granting in the present situation the exclusive right to tax the income of that company to the State of its residence.
Moreover, as a result of this conflict of laws Article 24a(1) the Corporate Income Tax Act with regard to Article 24a(2) and (3) point 3 the Corporate Income Tax Act, Article 24a(4) the Corporate Income Tax Act and Article 30f(1) the Personal Income Tax Act with regard to Article 30f(2) and (3) point 3 the Personal Income Tax Act and Article 30f(5) the Personal Income Tax Act with provisions Article 7(1) double taxation agreements, application of the above-mentioned provisions the Corporate Income Tax Act or the Personal Income Tax Act would violate certain rules under Article 87(1) and under Article 91(2) Constitution of the Republic of Poland.
Furthermore, with regard to the principle of exclusive right to tax the profits of a controlled foreign company in its country of residence, it should also be pointed out that there is an unacceptable conflict of law Article 7(1) individual double taxation agreements with Article 24a(6) the Corporate Income Tax Act and Article 30f(7) the Personal Income Tax Act, according to which the income of the foreign controlled company based on the calculation of the tax should be determined on the basis of the provisions of Polish tax law, which should also be considered a breach of the principle of exclusive right to tax the profits of that company in its country of residence.
Provisions Article 7(1) double taxation agreements concluded by Poland do not allow to determine revenues, costs and income or losses of a controlled foreign company under Polish tax law.
As regards the principle of exclusive right to tax the profits of a controlled foreign company in the country of residence resulting from Article 7(1) individual double taxation agreements, and the contradiction of these provisions should also be pointed out from Article 24a(17)(1) the Corporate Income Tax Act and Article 30f(19)(1) the Personal Income Tax Act, which introduces an exemption from taxation of foreign revenues of a controlled company with revenue not exceeding in the tax year an amount corresponding to 250,000 EUR, converted into Polish currency at the average exchange rate announced by the NBP, applicable on the last day of the tax year preceding the tax year.
Polish legislator by provision Article 24a(17)(1) the Corporate Income Tax Act and by analogy Article 30f(19)(1) the Personal Income Tax Act made double taxation of a controlled foreign company (or its absence) dependent on the national income limit of that company, while the provisions Article 7(1) double taxation agreements do not make the absence of double taxation of a controlled foreign company, a resident of a State associated with the Polish double taxation agreement dependent on any limit on their income.
In addition, a breach of the principle of exclusive right to tax the profits of a controlled foreign company in its country of residence would also be to apply the provision Article 24a(13) the Corporate Income Tax Act or Article 30f(15) the Personal Income Tax Act, introducing, on the side of the Polish taxpayer, at least 25% a shareholder (shareholder) of that company or controlling it in at least 25%, the obligation to keep a register of foreign companies, as well as the obligation to keep separate records of economic events occurring in this company, allowing to determine, among others, the amount of its income, using the provisions of Polish tax law.
Consistently, therefore, the provisions must be considered Article 24a(1) the Corporate Income Tax Act with regard to Article 24a(2) and (3) point 3 the Corporate Income Tax Act and Article 24a(4)(6)(13) and section 17 point 1 the Corporate Income Tax Act and equivalent regulations Article 30f(1) the Personal Income Tax Act with regard to Article 30f(2) and (3) point 3 the Personal Income Tax Act and Article 30f(5)(7)(15) and section 19 point 1 the Personal Income Tax Act By granting the Republic of Poland the right to tax the profits of a controlled foreign company, which is a resident of a State associated with the Polish double taxation agreement, constitute a violation of the principle of the exclusive right to tax the profits of that company in its country of residence expressed under Article 7 an appropriate double taxation agreement.
Having regard to the provisions Article 91(2) The Constitution of the Republic of Poland in the event of a discrepancy between the content of the double taxation agreement and the content of national laws, the provisions of the double taxation agreement shall take precedence over the relevant laws under the conflict-of-law rule lex superior derogat legi inferi.
As a result, the profits achieved by a foreign company controlled by the Polish taxpayer, a resident of a State associated with the Polish double taxation agreement, should not be subject to the inclusion in the income of that taxpayer and income tax in Poland with any consequences of this[4], because the sole right to tax them will be the residence of that company.
1 Provisions Article 7(1) all agreements concluded by Poland on the avoidance of double taxation have the same content, as they constitute the legislative cripple of the Moel OECD Convention on the avoidance of double taxation on income and property taxes.
2 Between Content Article 5 There may be some differences between the various agreements on the avoidance of double taxation concluded by Poland, but they are not relevant to the issue under consideration. These differences concern, among others, the period after which construction or assembly are considered to be a "establishment".
3 Except for further provisions of specific double taxation agreements relating to certain categories of income, in particular passive income (interest, dividends, royalties).
4 i.e. Polish taxpayer who is at least 25% a shareholder (shareholder) of such a company or controlling it in at least 25% should not be obliged to keep the records and records indicated under Article 24a(13) the Corporate Income Tax Act
The article comes from the book "International tax avoidance and its regulations in Polish law", DIFIN