On 29 October 2020, representatives of Poland and the Netherlands signed a new Protocol to the Double Taxation Treaty between two countries. The provisions of the new protocol will become applicable effectively from 1 January 2023.

The provisions of the Protocol implement changes proposed under the Base Erosion and Profit Shifting (“BEPS”) initiative and reflected in the latest version of the OECD Model Tax Convention from 2017 originally enshrined in Article 6 (1) of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI).

The Protocol introduces in particular:

  • rules for determining tax residence of persons other than natural persons with double tax residence;
  • new provisions on permanent establishment (PE);
  • real estate-rich company clause;
  • general anti-avoidance rule in the form of the so called Principal Purpose Test (“PPT”) accompanied by special rules enabling the claim of tax benefit despite PPT;
  • clarification of dividend-like income (income from shares) for WHT purposes aimed at including liquidation proceeds, income from purchase of own shares as well as income from transfer of investment certificates;
  • 0% WHT on dividends received by the recognized pension fund of a contracting state.


Selected amendments

Dual tax residence

The Protocol, following the MLI provisions as well as the OECD Model Tax Convention 2017 introduces new rules for tackling dual tax residence situations. It provides that if a person other than an individual is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on 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 shall not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities.

New provisions on permanent establishment (PE)

Another important change is reflected in the update of Article 5 of the PL-NL Treaty aiming at elimination of abuse of the preparatory or auxiliary activities exemptions, the splitting of one contract in several contracts/activities and abuse on the basis of dependent agents concept (definition of a dependent agent is widened). In essence, the Protocol implements a number of BEPS-oriented solutions aimed at prevention of avoiding PE status of non-residents.

Real estate-rich company clause

The Protocol introduces the so-called real estate-rich company clause. It states that gains derived by a resident of a contracting state from the alienation of shares in a company or comparable interests, such as interests in a partnership or trust, may be taxed in the other contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 75% of their value directly or indirectly from immovable property situated in that other contracting state.

It should be noticed that both under the MLI and the OECD Model Convention the relevant value threshold is 50% of the value derived from immovable property.

In addition, the Protocol provides for a new clause in article 13 of the PL-NL Treaty which enables residents of a contracting state being recognised pension funds (which are generally exempt from tax in that state) to tax income received from disposal of real estate-rich entities solely in the country of their residence (and not in the source country where the immovable property being transferred is situated).

General anti-avoidance provisions: PPT

Protocol introduces new wording of the general anti-avoidance rule in the Article 29 (1) of PL-NL Treaty, providing 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 in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

At the same time paragraf 2 of the Article 29 0f the PL-NL Treaty includes the principle of alternative relief which enables a taxpayer to claim treaty benefit before the competent authority despite meeting the conditions to deny it under the PPT.

Clarification of dividend-like income (income from shares) for WHT purposes aimed at including liquidation proceeds, income from purchase of own shares as well as income from transfer of investment certificates

The Protocol states that income from liquidation (or partial liquidation) of a company, income from purchase of own shares by a company, as well as income from distribution of certificates of an investment fund is treated as income from shares (dividend-like income). In practice, this legislative amendment means that income from the aforementioned types of transactions will be treated as dividend-like income and thus subject to 0%, 5% or 15% WHT rate in the source country.

0% WHT on dividends and interest received by recognized pension fund of a contracting state

Protocol will include recognized pension funds within the scope of withholding tax exemptions in relation to the dividends and interest.


When the Protocol starts to apply?

The Protocol will enter into force on the first day of the third month following the exchange of the notification instruments between the Governments of Poland and the Netherlands and will apply from 1 January of the year following its entry into force. 

The bill on the Ratification of the Protocol was signed on 23 November 2021 by the President of Poland. The bill entered into force 14 days after the date of publication. However, in order for the provisions of the Protocol to be applied, corresponding action is required on the Dutch side.

At the beginning of March 2022, the Dutch Ministry of Foreign Affairs announced that the procedures for ratification had been finalized. Therefore, the provisions of the Protocol should enter into force as of 30 April 2022.

This means that the provisions of the Protocol will apply to tax years, periods and events occurring from 1 January 2023.


Let’s talk

The published Protocol will certainly have a major impact on the existing investment structures involving the Netherlands and Poland especially in the light of the new provisions concerning real estate-rich company clause, creation of permanent establishment, and principal purpose test.

In particular, investors which use Dutch holding companies owning Polish real estate companies will need to verify if disposal of shares will trigger a capital gain taxation in Poland on the basis of newly introduced real estate-rich company clause. Also the currently modified changes to the Polish Corporate Income Tax Law relating to modification of domestic real estate clase as well as introduction of new definition of real estate company will need to be carefully observed. Finally, any tweak in the ownership between the Dutch holding companies owning Polish real estate companies may potentially be targeted by the Polish tax authorities through the PPT, if they lack the non-tax investment purposes and the adequate degree of the economic substance. Although the findings of the Canadian Federal Court of Appeal (CFCA) in the recently decided case of Alta Energy (12 February 2020) imply that economic substance cannot be understood as additional requirements to be met to access treaty benefits, it remains to be seen if such path will be followed by the Polish tax authorities and courts under the PPT.