Tax Treaty Case Law around the Globe 2019

S. 421. Introduction

The Polish case discussed in this Chapter was heard by the Administrative Court Rzeszów on 16 October 2018. The issue in this case was the meaning of the term “income tax paid in a foreign country” referred to in article 27(9) of the Polish Natural Persons Income Tax Act (hereinafter NPITA), in particular whether it should be understood as a federal tax or also as a tax on income collected by the states, and whether the state tax paid is deductible from the tax due in Poland. The dispute arose because under articles 2(2)(b) and 3(1)(12) of the Poland-United States Income and Capital Tax Treaty (1974), the meaning of the term “tax” is restricted to taxes imposed by the federal government. Therefore, the Polish tax authorities argued that the domestic law on the application of the credit method did not include state taxes and that only the federal tax could be deducted from the tax due in Poland.

According to article 2(1) of the Poland-US Tax Treaty, it applies to taxes on income imposed by each contracting state. Article 2(2)(b) specifies that, in the case of the United States, the taxes existing at present, to which the treaty applies are the federal income taxes impo...