Cyprus and Poland tax treaty updated

The agreement is thus ready for parliamentary deliberation and is expected to enter into force from 2013

Switzerland and the Germany signed a Supplementary Protocol that supplements the tax agreement of 21 September 2011. The following points have been added:

– After the agreement has come into force, inheritances which occur will be covered. In the case of inheritance, heirs must consent either to collection of a 50% tax or disclosure.

– In the case of flat-rate taxation of the past, the size of the tax burden has been increased. Instead of being between 19% and 34% as it was up to now, the tax rate is now at least 21% and no more than 41%.

– In addition the number of possible requests for information after entry into force of the agreement have been increased from a maximum of 999 to a maximum of 1300 within a period of two years. This option extends and supplements the exchange of information according to the OECD minimum standard.

– With the entry into force of the agreement on 1 January 2013, German taxpayers will no longer be able to shift assets out of Switzerland to third countries without notification. The appointed deadline was brought forward from 31 May 2013 to 1 January 2103.

– It was made clear that interest payments which are covered by the Taxation of Savings Income Agreement with the European Union or will be covered by this in future, will be excluded from the scope of the agreement. In this way, the concerns of the EU Commission regarding compatibility with EU law have been removed as was the case with the tax agreement between Switzerland and the UK.

– The regulations on the distribution in Germany of the revenue generated will be taken from the tax agreement. Within the scope of a German legislative procedure concerning the one-off flat-rate tax payment a higher proportion of the German Lander and communes will receive payment than would have resulted from the distribution key in the case of tax on investment income.

– Individual models which come under the anti-abuse provision will now be described. In addition, monitoring implementation of the agreement by the competent Swiss authority and by an independent auditing company and the appointment of German Länder representatives on the so-called joint commission has been specifically laid down.

An important contribution will be made to tax equity with the amended agreement. The agreement not only respects the protection of bank clients’ privacy applicable in Switzerland but also ensures the implementation of Germany’s legitimate tax claims.

Madeira increased VAT rates and excise duties

On 22 March 2012, the Parliament approved Law Proposal 48/XII, which amended the VAT and excise duties legislation applicable in the Autonomous Region of Madeira

The amendments brought by Law Proposal 48/XII, which will be effective as of 1 April 2012, include:

1. Increase of the VAT rates as follows:
– Standard rate from 16% to 22%
– Intermediary rate from 9% to 12%
– Reduced rate from 4% to 5%
2. Introduction of excise duty on electricity
3. Changes on the excise duties rates applicable on tobacco and alcoholic beverages.

The approved text of Law Proposal 48/XII will be published shortly in the Republic Gazette.

Cyprus and Poland tax treaty updated

The protocol adopts a tax information exchange clause, making it possible to obtain information about the income of residents, including information held by a bank

Cyprus and Poland signed a protocol to the 1992 treaty on 22 March 2012, with the more substantive changes affecting the taxation of dividends, interest and royalties, the remuneration of directors and the tax sparing clause.

Other provisions address the treaty’s scope (both territorial and taxes covered), the method of calculating an individual’s residence period to determine taxing rights on income from professional services and employment, the definition of license fees and the adjustment of profits of associated enterprises.
In place of the currently applicable 10% withholding tax rate on dividends, the protocol provides an exemption for dividends paid to a company that holds directly at least 10% of the share capital of the distributing company for a period of two years, with a 5% rate applicable in all other cases. The rate on interest will be reduced from 10% to 5%. While the 5% rate on royalties is unchanged, “royalties” will be re-defined to align with the OECD model treaty.

The protocol also removes the tax sparing clause that currently allows for a decrease in the effective tax rate on passive income derived by residents of both Cyprus and Poland.

One of the most significant changes is in the article on directors’ fees and other similar payments derived in the capacity of a member of the board of directors or the supervisory board or other similar organ of a company. The treaty currently allows such fees paid to individuals who are a resident of one contracting state to be taxed only by the country in which the company is resident. Under the protocol, such fees will be taxable only in the country in which the individual is resident. Polish negotiators insisted on this change to stop tax planning by Polish residents who were directors of companies in Cyprus (which taxes directors’ fees of nonresident individuals only to the extent the duties are carried out in Cyprus) so that, through use of the exemption method to relieve double taxation under the treaty, they could receive directors’ fees tax free. Under the protocol, such income of Polish residents will be taxed in Poland. Cypriot directors of Polish companies can benefit as well because such income will be taxed only in their place of residence.

Cyprus and Poland must complete the ratification procedures required under their respective domestic laws, with the protocol entering into force on the date of receipt of the latter of the notifications of ratification. The protocol will apply in both countries on 1 January of the year following that in which the protocol enters into force. The protocol is expected to strengthen the already strong business ties between the two countries, especially in the areas of investment and shipping.