Double taxation is a situation in which a taxpayer is charged two different taxes for the same income. This turn of events – in accordance with Polish judicial practice – is illegal and contrary to the Constitution. The risk of double taxation applies primarily to those taxpayers who work or run a business in different countries – for example, they live in Poland or have their center of life interests here but earn money abroad or vice versa. Preventing double taxation is crucial for businesses operating in Poland, especially those with cross-border activities. Here are some effective strategies to avoid or mitigate double taxation for businesses in Poland:
Use of Double Taxation Avoidance Agreements (DTT) Poland has concluded many double taxation avoidance agreements with various countries. These agreements are usually based on the OECD Model Convention and provide methods for eliminating double taxation. First is exclusion method with progression, which means that income earned abroad is excluded from the tax base in Poland. However, its amount affects the determination of the tax rate on other income that is subject to taxation in Poland according to the tax scale. Second is Proportional deduction method, which means that income earned abroad is taxed in Poland, but you deduct the tax paid abroad from the tax due in Poland. This deduction is only possible up to the amount of tax attributable proportionally to the income obtained in a foreign country.
Planning for Tax Residency Companies should carefully plan their tax residence. Poland considers a company to be tax resident if its management or control is located in Poland. Structuring management and control can help determine the most favorable tax residence status. Having tax residence (place of residence) in Poland is associated with the obligation to settle income in Poland on the basis of unlimited tax liability referred to in Art. 3 section 1 of the Personal Income Tax Act. Lack of tax residence in Poland means being subject to limited tax liability within the meaning of Art. 3 section 2a of the Personal Income Tax Act.
Compliance with transfer pricing regulations is crucial to avoid disputes that could lead to double taxation. Polish regulations require that transactions between related entities be carried out on market terms. Proper documentation and compliance with these regulations are essential to avoid adjustments that could result in double taxation. In the international context, various mechanisms exist to eliminate double taxation. Mutual communication procedures are available on the basis of double taxation avoidance agreements and the Arbitration Convention, which binds the Member States of the European Union. The MAP procedure aims to eliminate double taxation in transactions between entities based in different countries. It involves negotiations between the tax administrations of the transaction parties, which strive to establish transaction conditions acceptable to both parties.
Due to the exclusion of various mechanisms applicable to elimination. Procedures are available for mutual communication on accounts to exclude double connection and the Arbitration Convention, which connects the device to the entry of the European Union. The MAP procedure aims to eliminate double infringement in activities between entities based in different countries. It involves negotiations between the tax administrations of the transaction parties, which require conditions acceptable to both parties.
GLC offers legal and tax assistance, including comprehensive support in avoiding double taxation for enterprises operating both in Poland and on international markets. Thanks to our experience and specialist knowledge, we are able to offer effective solutions tailored to the individual needs of your company.
She started her career at GLC five years ago as an intern in the legal department. Currently, as a legal advisor, she mainly deals with corporate topics. On a daily basis, she supports entrepreneurs in their day-to-day operations.
