International tax law

Analysis and application of double taxation treaties

When planning an international investment, there are few risks we should take into account. Those include not only the risk of the business operations, but also the tax aspects. International tax law, with its transnational character, regulates the powers of other States to tax profits made in their territory. Countries seek a compromise between the universality of taxation of all profits and attracting investment. To do so they conclude agreements on the avoidance of double taxation. Analysis of these contracts will indicate investment opportunities in a given country. As a result it will reduce the risk of double or unfavourable taxation.

Double taxation treaties

At present, Poland has concluded 90 agreements to avoid double taxation with other Countries. Those differ in the scope of taxation, exemptions and rates. The choice of a place to conduct business through, for example, an offshore company, or a plan for securing property through private foundations, requires a thorough analysis of international agreements and issues related to the avoidance of double taxation of gained profits. Double taxation avoidance agreements may therefore affect the Polish tax resident. It may happen due to, among others, article 4a of the Personal Income Tax Act, which provides:

Provisions of article 3 par. 1, 1a, 2a and 2b [governing tax liability] shall apply with regard to agreements on the avoidance of double taxation to which the Republic of Poland is a party.

The correct decision regarding the selection of the jurisdiction to locate capital e.g. in the form of a holding structure or a foreign company or partnership, will have effects under the tax law of Poland and the country of investment. An example may be the use of directors’ remuneration in various countries with which Poland has signed agreements to avoid double taxation. A properly prepared structure will operate in the Poland – Malta relationship. However, the same structure will prove to be ineffective in the context of the Poland – Portugal Agreement.

Foreign investments

The use of double taxation treaties also applies to foreign investment and the willingness to settle it in Poland. These agreements regulate the establishment of a plant for tax purposes. The profits of these should be settled in the Country of investment. Accounting and tax settlements may be unfavourable or very complicated for a taxpayer who has achieved profits from operations abroad. Appropriate use of double taxation treaties can protect us from establishing a plant for tax purposes in another country and settling all profits in Poland. As part of the application of agreements on the avoidance of double taxation, and foreign tax regulations, it will be possible to defer taxation in order to preserve the company’s financial liquidity.

Regardless of the foreign investment business plan, it is necessary to analyse the tax consequences on the basis of Polish and international tax law. CGO Legal specialists will assist you in the tax analysis of the planned investment and tax consequences. We will provide effective solutions for international structures and avoidance of double taxation as part of our foreign operations. The application of solutions to avoid double taxation will allow legal protection of planned business solutions. As part of the structures, it is also possible to solve double non-taxation. That is optimization ensuring exemption from taxation in Poland and in the country of investment. Experienced lawyers of CGO Legal, in cooperation with the offshore department, will present secure business and tax solutions for the planned structures. Everyone interested in international optimization, please contact us.