The protocol, signed April 14, 2014, replaces the OECD-based formula of a maximum 5 percent withholding tax on cross-border dividends if the dividends are distributed to a company other than a partnership that holds at least 25 percent of the capital of the payer company, or 15 percent in all other cases, with a single rate of 10 percent.
The protocol also introduces a full withholding tax exemption for dividends if the beneficial owner is a company other than a partnership that directly holds at least 10 percent of the capital of the payer company for an uninterrupted period of 24 months. That basically mirrors the current exemption available under the amended 1990 EU parent-subsidiary directive. The dividend tax exemption will also be available to pension funds.
A maximum withholding tax on cross-border interest and royalty payments will remain at 5 percent; however, a full withholding tax exemption for interest will be available to pension funds. The definition of royalties has been modified to include payments for the use of, or right to use, any copyright, patent, trademark, secret formula, model, plan, or technology or manufacturing process, as well as for the use of, or right to use, any industrial, commercial, or scientific equipment or information related to industrial, commercial, or scientific know-how, or any payment obtained in connection with the use of, or right to use, any copyright to cinematographic films or film or tapes for radio or television.
To avoid double taxation, Poland generally will apply the exemption with progression method except for income from a permanent establishment, dividends, interest, royalties, capital gains, independent personal activity, and pensions, to which an ordinary credit method will apply. Belgium generally will apply the exemption method, except for some types of income, including interest and royalties, to which an ordinary credit method will apply.
The new protocol also amends the mutual agreement procedure and exchange of information articles. In one important change, a new article 28A provides for a limitation of treaty benefits if “the income has been paid or received in connection with an artificial arrangement.”
The new protocol will apply to income paid or credited on or after January 1 of the calendar year following the year in which the protocol enters into force, which means January 1, 2016, at the earliest.