On October 6, 2015 Poland and Sri Lanka concluded a new Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Hereafter: the DTA). When entering into force this new DTA will replace the existing Double Taxation Agreement (stemming from 1980) that currently is in place between Poland and Sri Lanka.
Although the new DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
According to Article 2, Paragraph 3 of the DTA (“TAXES COVERED”) the existing taxes to which this Agreement shall apply are in particular:
a) in case of Poland:
(i) the personal income tax, and
(ii) the corporate income tax;
b) in case of Sri Lanka: the income tax, including the income tax based on the turnover of enterprises entered into agreements with the Board of Investment;
Paragraph 4 of Article 2 of the DTA subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes on income, which are imposed after the date of signature of this DTA in addition to, or in place of, the existing taxes.
Permanent establishment
Paragraph 3 of Article 5 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that the term "permanent establishment" likewise encompasses:
a) a building site, a construction, assembly or installation project, a drilling rig or ship used for the exploration or development of natural resources, including supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more 6 months;
b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 183 days in any twelve month period commencing or ending in the fiscal year concerned.
Paragraph 6 of Article 5 of the DTA subsequently arranges that notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 of Article 5 of the DTA applies.
Associated enterprises
Paragraph 2 of Article 9 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
Paragraph 2 of Article 10 of the DTA (“DIVIDENDS”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions to 10 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a resident of the other Contracting State.
Interest
Paragraph 2 of Article 11 of the DTA (“INTEREST”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 10 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.
Royalties and Fees for Technical Services
Paragraph 2 of Article 12 of the DTA (“ROYALTIES AND FEES FOR TECHNICAL SERVICES”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments and fees for technical services to 10 per cent of the gross amount of the royalties or fees for technical services, if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State.
Paragraph 3 of Article 12 subsequently gives the following definitions:
a) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright, patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use any industrial, commercial, or scientific equipment or for information concerning industrial, commercial or scientific experience (know-how);
b) The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.
Capital Gains
With respect to capital gains Paragraph 1 of Article 13 of the DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation from immovable property referred to in Article 6 of the DTA and situated in the other Contracting State may be taxed in that other State.
Paragraph 4 of Article 13 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares of a company deriving more than 50 per cent of their value directly or indirectly of immovable property situated in the other Contracting State may be taxed in that other State.
Paragraph 5 of Article 13 of the DTA arranges that gains, other than those to which paragraph 4 of Article 13 of the DTA applies, derived by a resident of a Contracting State from the alienation of shares of a company which is a resident of the other Contracting State, may be taxed in that other State if the alienator, at any time during the 12-months period preceding such alienation, held directly or indirectly at least 50 per cent of the capital of that company.
Other
The DTA furthermore includes articles containing provision regarding a Mutual Agreement Procedure (Article 25 of the DTA), the Exchange of Information (Article 26 of the DTA) and an article on Limitation of Benefits (Article 27 of the DTA).
Click on the language of your choice to be forwarded to the text of the DTA as available on the website of the Polish Ministry of Finance (English, Polish or Sinhala).
Are you looking for an other DTA? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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