There is no moral reason to pay more tax than the law demands. Those who consider that they are not taxed enough (in fact what they mean is that others are not taxed enough) may donate money to a charity which will no doubt be more efficacious in sensible spending than any government. And the law’s demands should be moderate: tax to generate revenue to pay for essential needs on which the country is largely agreed rather than for reasons of pandering to envy or some misguided belief in wealth distribution. As I suggested in Double Trouble, flat rate taxes are fairest: all pay at the same rate but those who earn more pay more in total. It is odd how those preach equality never grasp the inherent equality of a flat rate tax system. That being said, absent flat rate taxes, the avoidance of tax is one of the preoccupations of investors and Poland, perhaps surprisingly, does offer some opportunities for tax efficient investment.

In Double Trouble we saw that the Polish tax authorities had been busy renegotiating the Poland Cyprus tax treaty to close the loophole on the taxation of directors’ fees paid to directors of Cyprus companies resident in Poland. You will be pleased to know that they are keeping busy and last month signed a protocol with Luxembourg which changes the Poland Luxembourg double taxation treaty, subject to ratification by the Polish and Luxembourg parliaments. Unsurprisingly there were a number of changes which work against Polish tax payers: the current exemption method of taxing Polish residents receiving a dividend from Luxembourg will be replaced by the tax credit method which means that Polish residents will no longer enjoy the current advantageous tax rates on dividend payments. In addition (a similar change was made to the UK Poland tax treaty a few years ago) the sale of shares in a company more than 50 per of whose assets comprise real estate will be taxable in the country of residence of the company. There are also some reductions of withholding tax rates on interest, royalties and dividends.

However, the Poland Luxembourg combination does allow for some very advantageous structuring opportunities normally associated with more exotic havens. How so? The starting point is that rather odd beast, the Polish limited joint stock partnership. This combines features of partnerships and joint stock companies and has general partners who conduct the partnerships business and have unlimited liability (although they may themselves be limited companies) and shareholders who take no part in the running of the partnership and are liable only to the extent of capital contributed to the partnership.

Inevitably, the taxation of this structure has been problematic. Are the shareholder partners to be taxed as shareholders – as in a company – on receipt of the dividends which constitute their profit share or are they to be treated as other partners in a partnership and pay income tax advances on income derived from the partnership during the year. Given that the shares in the limited joint stock partnership may be bearer shares making it potentially difficult to identify the shareholders at any particular moment and the fact that profits are not received on a continuing basis but only when (and if) a dividend is paid, there was a danger of partners paying tax on virtual income. Earlier this year, the Supreme Administrative Court resolved his difficulty by stating that the taxation of such a shareholder’s income should be at the moment of payment of the dividend.

Thus this structure becomes potentially attractive for investors in Poland who may now postpone the taxation of profits until the date of actual distribution. In addition, as the shareholders are in effect partners, there is no taxation at the corporate level which is a more tax efficient structure than a company where the company first pays corporation tax on its profits and shareholders pay tax on dividends received. The combination of the tax transparency of partnership with the limited liability of a company is very advantageous. The limited joint stock partnership may then be combined with a Luxembourg investment fund to create a very tax effective structure which results in an actual rate of tax close to zero. Of course, there are costs of putting the structure in place but any investor contemplating making a sizable investment in Poland should certainly consider it. Double trouble? Perhaps – but to paraphrase Newton, for every tax barrier there is an equal and positive tax opening.

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