Protocol amending the Double Tax Treaty with the Kingdom of the Netherlands has been signed

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The Ministry of Finance informed that on October 29, 2020, a Protocol amending the Double Tax Treaty with the Netherlands was signed.

It takes into account the accomplishments of the OECD BEPS (Base Erosion and Profit Shifting) project, including proposals for tightening the tax system and combating tax fraud, and solutions from the MLI convention[1].

The protocol includes:

  • introduction of the transparent entity clause
  • introduction of the principle purpose test (PPT),
  • introduction of the real estate clause,
  • new rules on the permanent establishment,
  • developing the rules for determining tax residence of persons other than natural persons with double tax residence.

The content of the protocol remains unknown at the time of publishing this post. The protocol itself, however, still requires ratification. If the ratification process is completed by the end of November 2020, the new Protocol may enter into force as early as 2021.

What does this mean in practice?

The new taxation rules, in conjunction with the planned changes to CIT, will certainly have an impact on the structures of international real estate groups – both in terms of the place of taxation of disposal of shares in real estate companies and in terms of taxation of Dutch structures owning real properties located in Poland.

Particularly noteworthy is the introduction of the so-called real estate clause, which in practice will mean taxation in Poland of capital gains obtained by a Dutch entity from the sale of shares in a company directly or indirectly holding real estate assets in Poland. The definition of the asset test is not known yet, it can be assumed that it will be similar to MLI relating to a 365-day period.

Another significant change is the introduction of the so-called the principle purpose test (PPT), which is in fact an anti-abusive clause. The purpose of the test is to refuse to apply the favourable provisions of the double taxation convention  in a situation when obtaining such an advantage was one of the main objectives of the transaction. As a result, the application of the PPT clause may mean the collection of withholding tax on payments made to the Netherlands at the national rate, disregarding contractual rates.

Let’s discuss

 If you have in your structure:

  • holding companies in the Netherlands,
  • Dutch shareholders of Polish real estate companies,
  • Dutch partners of Polish limited partnerships,
  • branches of Dutch companies,
  • Dutch entities operating in Poland without the form of a branch,
  • payments of passive income (dividends, interest) to entities from the Netherlands,
  • planned sale of the real estate company by Dutch direct or indirect shareholders

and you are wondering how the planned changes will affect these structures, please contact us.

Małgorzata Dankowska
Partner
Head of RE Advisory

Read more – gov.pl (PL)

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[1] Multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting, drawn up in Paris on November 24, 2016, signed in Paris on June 7, 2017.

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