Tax Treaty Case Law around the Globe 2024

20.1. Introduction

The issue in the case decided by the Polish SAC on 7 March 2023 (II FSK 2034/20) concerned whether the remuneration for the use of the trademark included in the price of goods purchased by a Polish company from a Swiss PE of a company resident in Luxembourg will be considered royalties within the meaning of article 21 of the CITA and article 12 of the Poland-Switzerland Income and Capital Tax Treaty (1994).

Under the provisions of the CITA, royalties derived in Poland from trademark rights are subject to a 20% income tax rate. However, the provisions of the agreement on the avoidance of double taxation concluded by Poland with Switzerland (PL-CH) allow for a reduced withholding tax rate of 5% on gross royalties. The CITA additionally requires the presentation of a certificate of residence by the recipient of the royalties. Under article 7 of the PL-CH DTC, business profits, including income from sales, of a non-resident enterprise may only be taxable in the source country if the activities of the enterprise are wholly or partly conducted through a PE located therein. Under these provisions, it is crucial to determine whether the price of goods paid to a foreign ent...