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How MLI can impact Polish tax treaties?

June 13, 2017

On 7 June 2017 Poland became a signatory to the Multilateral Convention to implement tax treaty related measures to prevent BEPS (“MLI”). The goal of the MLI is to allow signing parties to amend currently in force double tax treaties (DTT’s) without time-consuming  mutual negotiations.

 MLI will enter into force 3 months after 5 countries will ratify the Convention and in bilateral relations it will be binding after both contracting states ratify the MLI.

The construction of the MLI impose for the signing countries obligation to adopt the so called “minimum standard measures” being introduction of the new preamble to DTT and principal purpose test (PPT) – each aiming in different ways to prevent treaty abuse. For other provisions signing countries are allowed to either opt out some of the provisions or to apply their modified version.

 At signing of the MLI, Poland has provided an initial list of the of the DTTs that it wishes to be subject to MLI as well as respective reservations (“MLI List”). Out of the 89 DTT’s concluded by Poland, 78 DTT’s were indicated as so called Covered Tax Agreements. It should be however noted  that Poland is already in the process of renegotiation of some of the DTT’s and those are likely to be deal separately.

 At this stage it is too early to conclude on the final scope of the DTT’s and the scope of their amendments as final version of the reservations will be known once Poland will pass the ratification document to OECD. Nevertheless at this stage Poland followed the OECD approach and indicated adoption of the minimum standard measures. Based on the MLI List it seems also that Poland will be willing to modify the Covered Tax Agreements with respect to i.a. real estate clause and dividend taxation, and certain hybrid mismatches, whereas it has reserve the right not to follow the provisions regarding avoidance of the PE status through commissionnaire arrangements and splitting up contracts.

 Still, it is not automatic that all of the Covered Tax Agreement indicated by Poland in the chosen scope will become amended. For that the matching approach needs to be chosen by a other party to given DTT.