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Tax Alert


									Tax Alert
                                                                                               Number 148
                                                                                               October 2004


In our Tax Alert 144 (April 2004) we advised you of the progress of the harmonisation of Polish law with
the EU corporate income tax directives, indicating that Poland had filed for a transitional period for the
implementation of the Council Directive of 3 June 2003 on a common system of taxation applicable to
interest and royalty payments made between associated companies of different Member States (Interest -
Royalties Directive 2003/49/EC).

On 29 April 2004 the European Council passed amendments to the Interest - Royalties Directive granting
Poland the requested transitional period (Directive 2004/76/EC).

The transitional period for Poland is divided into three stages. The last day of the first period is the day
when another directive, i.e. the Savings Directive (2003/48/EC), is coming into force. Originally the
Savings Directive was scheduled to take effect on 1 January 2005; however, the European Council was
instructed to make sure that the conditions for its implementation were met and was granted the right to
postpone the effective date. The Council exercised this right and decided to reschedule the implementation
date of the Directive for 1 July 2005 (Decision of 19 July 2004; 2004/587/EC).

Considering a modification resulting from the Council’s decision, Poland is now authorised to take
advantage of the transitional period under the following conditions:
• until 1 July 2005 Poland is fully exempt from the obligation to apply the Interest - Royalties Directive,
which implies that until that day withholding tax on such payments is applicable in accordance with
Poland’s national law and a relevant double tax treaty with the Member State where a beneficiary is
• from 1 July 2005 to 30 June 2009 (4 years) Poland may apply withholding tax on interest and royalty
payments at a rate not higher than 10%,
• from 1 July 2009 to 30 June 2013 (subsequent 4 years) Poland may continue to apply withholding tax
on such payments at a maximum rate of 5%.

We would like to point out that the preamble of the directive granting Poland the transitional period
(2004/76/EC) features an error. Under point 3 of the preamble Poland has been granted the transitional

 §   Warszawa                                                §   Wrocław
     tel: 022 557 70 00, fax: 022 557 70 01                      tel: 071 375 10 00, fax: 071 375 10 10

 §   Kraków                                                  §   Poznań
     tel: 012 431 12 20, fax: 012 431 12 51                      tel: 061 856 29 00, fax: 061 856 30 00

 §   Katowice
     tel: 032 760 77 00, fax: 032 760 77 10
                                                                                                  Alert Nr. 148
period for royalties only. This is inconsistent with Article 1 Item 2 of the Directive, which grants that

period for interest and royalties alike. Most probably this error will not carry any legal implications; on the
other hand, in acquis communautaire a preamble has binding authority.

The existing wording of the Polish statute implementing this directive (amendments of 20 April 2004 to the
income tax acts) was prepared on other assumptions as to the length of the transitional period; it does not
provide for any changes in withholding tax chargeable on interest and royalties until 1 May 2012 only.
Conversely, the correct transitional period is included in the Government’s draft amendments to the
Corporate Income Tax Act, which have been forwarded to the Lower House of Parliament for the first
reading. It is difficult now to say how the amended law will be ultimately worded.

Information in Ernst & Young's Alerts is aimed at highlighting specific issues and/or changes in the law. Before
making any concrete decisions, we recommend you consult your tax adviser.


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