one from the assumptions of the new law introduced by the MLI, is to replace the method of avoiding double taxation with the method of proportional crediting. See how accounting and tax returns have changed in practice.
On 7 June 2017 in Paris 68 countries, including Poland, have signed a Multilateral Convention implementing measures of treaty tax law to prevent erosion of the tax base and profit transfer (Multilateral convention to implement tax treaty – related measures to prevent base erosion and profit shifting – in short MLI).
The main objective of the Convention is to effectively address international tax optimizations. For Poland, the ratification of the Convention will ultimately entail amendments to 78 double taxation agreements. The new law applies from 1 July.
one from the assumptions is to replace the method of avoiding double taxation, the so-called exemption with progression, with the method of proportional crediting (Article 5 Convention). Yeah.
first is that the income achieved in second However, it has an impact on the determination of the interest rate, according to which the tax due on income generated in Poland should be calculated.
The disadvantage of this method is the possibility of double non-taxation in situations where second the country's income is exempt from taxation. Such phenomena are prevented by the method of proportional crediting.
Its application means that the income generated abroad is taxed in Poland, but the tax paid abroad is deducted from the calculated tax. This deduction can only be made up to the amount of the tax proportional to the income generated in second country.
What effects on ordinary Kowalski working abroad will be made – best observed in examples
Let us assume that Jan Kowalski lives with his family permanently in Britain, where he also earns all of his income. In his situation, nothing will change, his tax residence is in the UK. As a result, income from working in the UK is not taxed in Poland (as nonresident income), it is not mandatory to declare it – that is to say, to make a proper tax return.
Let us modify our example assuming that the taxpayer is a Polish tax resident, i.e. in Poland he has a centre of life interests – here is his family. The UK is only temporarily resident (e.g. 4 months of the year performing seasonal work), achieving its only income there during the year.
So far, his revenue generated in the UK has been exempt from taxation in Poland using the method of exemption with progress. The taxpayer was also not obliged to submit tax statements in Poland. At the moment, his income will also not be taxed in Poland due to the possibility of considering the so-called abolition relief.
However, due to the application of the proportional credit method, there will be an obligation to give annual testimony in Poland, including income from working in the UK.
Subject to income taxation in the country, Polish taxpayers working or working abroad will not be obliged to pay tax in Poland.
The last case considered by us will concern a situation in which the taxpayer, as in the above example, has a centre of life interests in Poland and in its territory receives part of his income. The remainder is obtained in the UK, where he is temporarily for gainful purposes. In his situation, only the tax settlement will change.
Until now, income from working in the UK has been exempt from taxation in Poland using the method of inclusion with progress. However, due to income gain he was also obliged to make a tax return in Poland.
The income tax achieved in Poland was calculated by interest rate when calculating which was taken into account by income from working in the UK. After the UPO Convention has changed, it will be able to apply the so-called abolition relief to the UK income, which means that it is not taxed in Poland.
As before, he will also be required to give an annual statement in Poland, including revenue from Poland and showing income from working in the UK.
The examples analysed show that, subject to income taxation in the country, Polish taxpayers working or working abroad will not be obliged to pay tax in Poland. However, in some situations, they were subject to an additional obligation to submit a tax return in Poland, in which they will show income generated in other countries. However, on the website of the Ministry of Finance, it is noted that the Ministry is considering introducing solutions to remove unnecessary administrative responsibilities in this regard.
In conclusion, it should be pointed out that the above mentioned changes do not include from the vending machine all double taxation agreements to which Poland is party. So so that the other party to the agreement must ratify the Convention. Nor can he raise any objection as to the validity of the Article 5 MILI. At present, the Convention is in force in Austria, Jersey, Slovenia, the Isle of Man, and from 1 October 2018 will also apply in the UK, Serbia and Sweden.
Author:
Marcin Kołkowicz
Tax advisor, tax consultant at Russell Bedford Poland Sp. z o.o., graduate of the Administration, Management and Marketing of the Catholic University of Lublin named after John Paul II. The subject of tax law deals with from 2012. He gained experience in Lublin and in Warsaw tax advisory offices. Author and co-author of many tax publications, in particular for Tax and Tax Portal TaxFin.pl. In his career, he dealt with both direct and indirect taxation issues, with particular emphasis on VAT.