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EMIR 3 in Polish jurisdiction. OTC derivative instruments

EMIR 3 in terms of the core EMIR regulation – the most important bullet points based on the experience of KIEŁTYKA GŁADKOWSKI KG LEGAL in advising global clients in the Polish jurisdiction in the field of derivative instruments traded over the counter. 1. The essence of the EMIR regulation EMIR (European Market Infrastructure Regulation (EU) 2017/1899 is a regulation of the Council of the European Union and of the European Parliament on over-the-counter (OTC) derivatives, central counterparties and trade repositories. The regulation aims to increase the safety and stability of financial markets in Europe and prevent financial crises. 2. The original version of the Regulation of 2012. The context for the references in EMIR is the 2008 economic crisis, whose consequences proved severe for many European Union Member States. The regulation's point of reference is Article 114 TFEU, which governs the convergence of internal markets. However, Article 114 does not apply to tax regulations, the free movement of persons, or the rights and interests of employees. It recommended strengthening oversight of the EU market, including through the creation of a European system of financial market supervisors responsible for the banking sector, the insurance and occupational pensions sector, and the securities and markets sector. The regulation requires all derivatives, both exchange-traded and over-the-counter, to be transferred to a trade repository. One of the objectives of the 2012 regulation is to mitigate systemic risk, including through increased regulation of clearing and trading. The legal provisions regarding limited risk apply bilaterally and also cover non-EU countries. 3. EMIR Refit of 2019 amending the original regulation The 2019 regulation partially amended the 2012 EMIR regulations with respect to the clearing obligation, its suspension, reporting requirements, risk mitigation techniques related to OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories, and requirements for trade repositories. Amendments to the 2012 regulation also address definitional issues, including a broad definition of a financial counterparty, which can include, for example, a credit institution, an investment firm, or a central securities depository. The main differences between the original EMIR and the 2019 regulation include changes in access to reported data, aimed at facilitating supervision and risk analysis by supervisory authorities. The regulation changed the scope of reporting obligations, standardizing data formats and expanding the scope of reporting entities. The new regulation also aimed to provide a more proportionate approach to regulation, particularly in the context of small and medium-sized enterprises. Moreover, over the past 7 years, market conditions have changed, and new regulations have been adapted to these changes. 4. EMIR 3 regulation EMIR 3 introduces changes to the original regulation. The changes stem from a renewed need to increase the security of EU central counterparties (CCPs) to mitigate excessive reliance on systemically important CCPs from third countries. One of the most important changes is the requirement to maintain an active account with an authorized central counterparty within the European Union and to clear a representative number of interest rate derivatives transactions through this account in Polish złoty and euro. In addition to these regulations, EMIR 3 expands the scope of obligations regarding stress testing and reporting to the Polish Financial Supervision Authority. The primary goal of the amendment to the original EMIR is to increase the security and stability of the derivatives market by reinforcing oversight of these instruments. 4.1 Active Account Requirements Account activity requires that at least one EU-authorized account be active and that at least a representative number of transactions on the active account be settled. The Regulation specifies the necessary operational conditions for an active account to be functional, as documented in legal documentation, and to have IT connectivity. The counterparty must also have systems and resources that prevent it from operationally using the active account. All new transactions of the counterparty in derivative contracts falling within the automatic reconciliation category (AAR) can be settled in the account at any time. These operational conditions must, at a minimum, be stress-tested. Counterparties subject to AAR are required to report by calculating their activities and risk exposures in terms of the AAR. They must provide the competent authorities with the information necessary to assess compliance with the AAR every six months, including, where necessary, the representativeness obligation. Where appropriate, information contained in the report submitted pursuant to Article 10 of the Regulation must be used. 9 of EMIR, and also demonstrate in the report that the legal documentation, IT connectivity, and internal processes related to active accounts comply with the requirements. The regulations stipulate that counterparties subject to AAR that have already cleared at least 85% of their derivative contracts will be exempt from the operational conditions and aspects of the AAR reporting requirement. 4.2 The subjective scope of the active account requirement The requirement to have an active account applies to both financial and non-financial counterparties subject to the clearing obligation under EMIR and exceeding the thresholds in any AAR category. To determine whether an entity is subject to the AAR, it must first be subject to the clearing obligation under EMIR. Furthermore, the trading must involve OTC interest rate derivatives denominated in euro or Polish zloty, or involve short-term interest rate derivatives denominated in euro, and must exceed the clearing threshold of three billion euros individually or collectively for all types of transactions covered by the scope. Within six months of the regulation's entry into force, technical standards for active account requirements will be defined. The obligations stipulated in the regulation will apply to counterparties subject to the central clearing obligation that are clearing members from a third country and that exceed the clearing threshold in any instrument subject to the clearing obligation through an active account. 4.3 Transaction settlement rules Transaction clearing covers activities of derivatives counterparties within the meaning of EMIR, who are required to report the transaction to a repository (i.e., entities registered under EMIR, up to and including the transaction date for financial and non-financial counterparties, and up to the end of the second business day following the transaction's conclusion for non-financial counterparties whose trading activity in financial instruments does not exceed the regulatory thresholds). If transactions are concluded outside of a regulated market, they must be cleared at a CCP (central counterparty). Transactions cleared exclusively OTC must employ appropriate procedures to mitigate credit risk. Confirmation of the transaction must occur within the timeframe specified in EMIR. The 2024 Regulation amends the 2012 Regulation. referring to the third article regulating intragroup transactions, defining intragroup transactions as OTC derivative contracts entered into with another counterparty that is a member of the same group, if both counterparties are fully included in the same consolidation and are subject to appropriate centralised risk assessment, measurement and control procedures, and that counterparty is established in the European Union or another third country that is not a high-risk country. 4.4 Margin Requirements Counterparties should report all relevant types of collateral, providing values before and after reduction. The counterparty submits a report, determining the fixed value to be entered as the portfolio value. At the individual transaction level, initial margin and variation margin are posted for an uncleared derivative in accordance with the margin agreement. Compared to the original EMIR regulations, EMIR 3 increases the importance of transparency provisions for CCPs for participants providing clearing services and those providing such services to their clients. Central counterparties are required to disclose the performance of their margin to entities with whom they transact. This information should include margin model parameters such as the confidence level, the lookback period, the liquidation horizon, and the risk that encompasses the model's elements. Central counterparties also provide clearing members with a list of key assumptions and constraints of the margin model, including a description of the events that will trigger a breach of the assumptions. 4.5 Requirements for the recognition of third-country systems A new feature of EMIR regulations, introduced in its third regulation, is the exemption from the obligation to clear transactions with third-country pension systems. The systems must be recognized under the law of their country, authorized and supervised, provide pension services, and not pose a threat to the financial stability of the European Union. Referring to the previous provisions of EMIR 3, the obligation for transactions with third-country pension systems is for these participants to hold an active account. The exemption from transactions with third-country pension systems is intended to facilitate cross-border transactions.
21 August 2025
Press Releases

KIELTYKA GLADKOWSKI KG LEGAL

KIELTYKA GLADKOWSKI KG LEGAL is representing a global provider of a core CFD trading platform from the Middle East before the Polish central cybersecurity authority in a procedure to block websites used by brokers in the international financial market, including the FOREX market. Our lawyers are tasked with presenting evidence that the online activity of professional brokers operating on stock markets using our global client's core platform complies with the latest regulations of the Polish Act on Combating Abuse in Electronic Communications and the Polish Act on the National Cybersecurity System. In case KIELTYKA GLADKOWSKI KG LEGAL is representing a global provider of core online trading platform for professional CFD derivatives brokers in a procedure for overseeing internet network security in Poland before the President of the Office of Electronic Communications in Warsaw and, separately, by the Computer Security Incident Response Team of the Scientific and Academic Research Institute of NASK, part of the CERT POLSKA division. Interestingly, the latest procedural law in Poland requires communication with Polish authorities exclusively via electronic means. Our lawyers have special professional accounts for handling such correspondence as part of their admission to the bar association. The Polish authority, operating within the European cybersecurity network, wrongly applies preventive measures to our client's online global activity, including professional software facilitating trading in financial instruments worldwide. The basis of our activities are regulations of Directive (EU) 2018/1972 of the European Parliament and of the Council of 11 December 2018 establishing the European Electronic Communications Code (Recast) as well as Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union (NIS 1) and NIS 2 (Directive (EU) 2022/2555).
13 August 2025
Press Releases

KIELTYKA GLADKOWSKI KG LEGAL assists its American client - double use technology transfer to Poland within the framework of our law firm specialization in stock exchange and securities law

As part of our extensive specialization in the stock exchange and securities law (LINK: https://www.kg-legal.eu/stock-exchange-and-securities-law-in-poland/ ), KIEŁTYKA GŁADKOWSKI KG LEGAL is finalizing the first stage of technology transfer from the United States to Poland, comprehensively serving the American entity in the field of cross-border transfer of dual-use technology, possible market concentration and raising capital for the transaction by a contractor who is a Polish listed joint-stock company. KIEŁTYKA GŁADKOWSKI consultancy is carried out within the framework of Polish stock exchange and securities law. This is not the domain of corporate law alone, based on the basic legal sources such as the Commercial Companies Code or the Polish Accounting Act and the CIT Act, which regulate the corporate life of a Polish joint-stock company. That is why we support foreign investors and companies in the conditions of additional regulations: 1/ Polish Act on Trading in Financial Instruments; 2/ Polish Act on public offering and conditions for introducing financial instruments to an organised trading system and on public companies; 3/ Polish Act on Investment Funds and Management of Alternative Investment Funds; 4/ Polish Act on crowdfunding for economic undertakings and assistance to borrowers; 5/ Polish Act on supplementary supervision of credit institutions, insurance companies, reinsurance companies and investment firms that are part of a financial conglomerate; 6/ Polish Act on Capital Market Supervision; 7/ Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market; 8/ Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps ; 9/ Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories; 10/ Regulation (EU) No 596/2014 of the European Parliament and of the Council on market abuse.
09 May 2025

Exit fee and tax consequences – recent interpretation of Polish National Revenue Centre. How it is used within the framework of intra-group restructuring of activities.

Exit fee is a fee for transferring assets, functions or risks between related entities. It can be understood as remuneration for the transfer of important functions, assets or risks. It is paid during business restructuring, either once or periodically. On 30 January 2025 there has been issued important interpretation of the Director of the Polish National Revenue Information in respect of exit fee and tax consequences. The extensive analysis of the problem and recommendations related therewith, particularly for clients with international shareholding structure, can be found in detailed article prepared by our lawyers: https://www.kg-legal.eu/info/cross-border-cases/exit-fee-and-tax-consequences-recent-interpretation-of-national-revenue-centre-in-poland-how-it-is-used-within-the-framework-of-intra-group-restructuring-of-activities/ The Polish Tax Authority explained the tax consequences of the transaction the result of which was an increase in the applicant's production capacity, as well as the planned acquisition of further economic benefits in the long term, including an increase in the potential to generate revenues. The "exit fee" costs incurred by the applicant were aimed at the proper settlement of the transaction, under which the applicant acquired additional production functions in the production segment, thanks to which its production potential increased, thus translating into the possibility of generating increased revenues. The remuneration was incurred in order to, among other things, increase production capacity, further obtain economic benefits in the long term and increase the potential to generate revenues, and consequently - the remuneration in the form of the "exit fee" was incurred by the applicant in order to obtain revenue. The applicant in the case indicated that the value of the "exit fee" remuneration for the transfer of the production function was determined on the basis of an external analysis prepared by an independent entity, in accordance with generally applied valuation standards. Therefore, it could be considered that the "exit fee" remuneration was consistent with the market price condition specified in Article 11c of the Polish CIT Act. It was resolved that due to: - the impossibility of linking the remuneration to specific manufactured products or revenues generated from their sale (or even determining in what exact period(s) the revenue will arise), and - the impossibility of assigning the remuneration to separately acquired fixed assets constituting the production line taken over from the seller, the expenditure for the remuneration should be classified as indirect costs related both to generating revenues in the future and the general functioning of the company, including maintaining and securing the source of revenues by increasing the production potential of the applicant.
09 May 2025
Press Releases

CUSTOMS AND TARIFFS – NEW OFFER FOR INTERNATIONAL TRADERS

PLUS IMPORT DATA FROM EUROSTAT Direct access: https://www.kg-legal.pl/customs-and-tariffs-international-support/ KIELTYKA GLADKOWSKI KG LEGAL expands its practice further into customs and tariffs sector. For the needs of the new specialization, we have prepared a detailed presentation for our Clients, potential interested actors and, above all, for our Colleagues from outside the European Union, using the latest statistical information from the official statistical service of the European Union EUROSTAT, a video presentation on micro and macroeconomic data on imports and exports of American companies to the European Union with particular emphasis on the role of the Polish jurisdiction as an entry gateway for goods to the European Union by sea and air. Please note that it is the Polish jurisdiction that, after Germany and the Netherlands, is high in the ranking of customs duty revenues and other costs of crossing the customs border of the European Union. This is due to the fact that international companies use Polish customs officers as an alternative way of introducing goods to Europe in relation to countries such as Germany or the Netherlands. Especially for our foreign Colleagues, we have prepared additional detailed information in the description of our specialization on the reform of the digitalization of the customs service in the European Union as part of the Customs EU Data Hub. Before the reform, each customs office of all 27 European Union countries had separate operational software for handling import and customs procedures. In addition, the importing entity within the information chain sometimes has to pass as many as 5 documentary milestones of the transport of goods within the framework of global logistics. The European Union is striving to close the entire circulation of data on individual transport into one digital pill. As lawyers specializing for many years in import and securing payments for mass consumer goods, we try to optimize our offer of legal services by expanding the number of our specializations to include an additional sector of customs law.
11 April 2025
Press Releases

KIELTYKA GLADKOWSKI represented one of the largest toy manufacturers in a customs and transit case

KIEŁTYKA GŁADKOWSKI team consists of lawyers with sectoral substantive preparation in the defense sector. Legal experience is built on constant active participation in leading organizations of the defense sector, for example, by participating in a conference in Washington DC together with DoD specialists: https://www.kg-legal.eu/info/kg-legal-news/kieltyka-gladkowski-takes-part-in-cmmc-seminar-organised-by-ndia/ https://www.kg-legal.eu/info/kg-legal-news/presentation-delivered-by-kieltyka-gladkowski-at-the-inaugural-ndia-emerging-technologies-conference-in-washington-28-august-2023/ Sector preparation was used by our lawyers to handle the transaction of photo-optical sensor technology for eye tracking. The main problem of the transaction was the location of the entire technology in the hands of one entity, with the technology being developed within a group of companies. The task of the Polish team of KIEŁTYKA GŁADKOWSKI was to create a legal framework for anchoring all intellectual property of the technology in one entity. KIEŁTYKA GŁADKOWSKI used a creative approach by applying the classic legal structure of technology transfer based on the Polish structure of the remittance. We took advantage of the fact that all entities owning the technology were financed by the same entity. The entity identity enabled us to utilize a multi-entity transfer of remittance agreement. Legal support included: 1/ negotiating the terms of transferring the technology to the American shelf entity in order to prepare the technology for sale to an American investor; 2/ taking into account tax risks related to technology transfer, including the issue of VAT and income tax aspects within the framework of withholding tax rules; 3/ preparation of a multi-entity document constituting the basis for technology transfer to the American entity.
16 January 2025
Press Releases

Support for a British auction house in the sale of a work of art to Poland from the USA

KIEŁTYKA GŁADKOWSKI KG LEGAL supported the transaction of sale to Poland of an original document of the most important Polish artist. The unusual difficulty of the transaction on the part of the seller was that the purchasing public institution had to conduct a laboratory and scientific procedure regarding the provenance of the work before the transaction. The purchasing party was a Polish cultural institution that operates under a special law passed by the Polish Parliament. Legal assistance in sales required legal support under Polish law: 1/ the procedure for the temporary import of a work of art into the territory of the European Union from a destination in the United States of America; A particularly important issue in international transactions is the synchronization of the activities of the customs office and border services with the time of import of the work of art into Poland. KIEŁTYKA GŁADKOWSKI KG LEGAL explored the provisions of the European Union Customs Code, which provides for a special procedure for importing works of art for auction to Poland. 2/ negotiating the terms of securing payment by negotiating a special clause maintaining the ownership of the work of art until full ownership of the work of art is maintained and in this aspect differentiating in the contract the terms of holding, possessing and owning the work of art; In case of the transaction at hand, the considerable challenge was determining the public costs of the transaction, including withholding tax problems and the issue of transfer of payment. 3/ other issues related to the negotiation of the terms of the guarantee of the originality of the work’s origin. The standard problems of such legal support concern the identification of original documents for the work of art in order to ensure that the sale is made by the rightful owner of the work.
16 January 2025
Press Releases

KIEŁTYKA GŁADKOWSKI supported the transfer of dual-use technology from a Polish LLC to the USA

KIEŁTYKA GŁADKOWSKI team consists of lawyers with sectoral substantive preparation in the defense sector. Legal experience is built on constant active participation in leading organizations of the defense sector, for example, by participating in a conference in Washington DC together with DoD specialists: https://www.kg-legal.eu/info/kg-legal-news/kieltyka-gladkowski-takes-part-in-cmmc-seminar-organised-by-ndia/ https://www.kg-legal.eu/info/kg-legal-news/presentation-delivered-by-kieltyka-gladkowski-at-the-inaugural-ndia-emerging-technologies-conference-in-washington-28-august-2023/ Sector preparation was used by our lawyers to handle the transaction of photo-optical sensor technology for eye tracking. The main problem of the transaction was the location of the entire technology in the hands of one entity, with the technology being developed within a group of companies. The task of the Polish team of KIEŁTYKA GŁADKOWSKI was to create a legal framework for anchoring all intellectual property of the technology in one entity. KIEŁTYKA GŁADKOWSKI used a creative approach by applying the classic legal structure of technology transfer based on the Polish structure of the remittance. We took advantage of the fact that all entities owning the technology were financed by the same entity. The entity identity enabled us to utilize a multi-entity transfer of remittance agreement. Legal support included: 1/ negotiating the terms of transferring the technology to the American shelf entity in order to prepare the technology for sale to an American investor; 2/ taking into account tax risks related to technology transfer, including the issue of VAT and income tax aspects within the framework of withholding tax rules; 3/ preparation of a multi-entity document constituting the basis for technology transfer to the American entity.
16 January 2025

Application of the look-through approach concept in Poland – new tax rulings and interpretations

Practical comments on beneficial owner, treaty shopping, beneficial owner clauses for dividends, beneficial owner clauses for interest, substitute companies and abusive clauses, the status of a beneficial owner in various types of intermediary centres between service orderers and service providers, withholding tax on interest paid within the cash pooling structure. Basic definitions The look-through approach (also known as LTA) is an issue in international tax law concerning the problem of double taxation, also related to the issue of the so-called withholding tax. It allows for the application of preferential double taxation rates based on a double taxation treaty concluded between Poland and the country of the beneficial owner's seat, in the scope most often concerning dividends, interest and royalties. However, only an entity with the status of a beneficial owner, is entitled to such privileges. The concept of the beneficial owner is key concept in this respect. Under Polish law, it has a legal definition in art. 4a point 29) of the Corporate Income Tax Act of 15 February 1992 (consolidated text: Journal of Laws of 2023, item 2805, as amended; hereinafter referred to as the CIT Act). In light of this definition, the beneficial owner of the recipient of the payment is an entity that meets the following conditions: receives the receivable for his/her own benefit, including deciding independently on its purpose and bearing the economic risk associated with the loss of the receivable or part of it, is not an intermediary, representative, trustee or other entity obliged to transfer all or part of the receivable to another entity, conducts actual business activity in the country of its registered office, if the receivables are obtained in connection with the conducted business activity, and when assessing whether the entity conducts actual business activity, the nature and scale of the activity conducted by that entity in the scope of the receivable received are taken into account. Commentators on this provision of the Act indicate that the beneficial owner should be considered in the context of Art. 4a item 29) of the CIT Act as follows: "an entity that receives a given receivable for its own benefit, including an entity that independently decides on its purpose and bears the economic risk associated with the loss of this receivable or part thereof, not being an intermediary, representative, trustee or other entity legally or factually obliged to transfer all or part of the receivable to another person or entity". In short, the beneficial owner is an entity conducting business activity that receives the payment for its own benefit and is not obliged to transfer it to any other entity. Therefore, the acquisition of the beneficial owner of the recipient of the payment is definitive - he is the final recipient. Therefore, assuming that company A with its registered office in country X transfers the payment to company B with its registered office in country Y, but 100% of the shares in company B are held by company C with its registered office in country Z and the entire dividend from company B is transferred to company C, then company C should be considered the beneficial owner of the dividend and may benefit from preferential taxation conditions on this basis, while company B, which is not the beneficial owner but the administrator of the income, cannot. It should be noted, however, that the concept of beneficial owner known under Polish law applies to the interpretation of international agreements on double taxation only in the context of tax liabilities towards Poland. The case law indicates that the concept of an entity with beneficial owner status is intended to limit the phenomenon known as treaty shopping – the use of intermediaries in transactions based in favorable tax jurisdictions for the purpose of unauthorized use of contractual benefits based on international agreements. However, if an entity qualifies for the status of beneficial owner, it may fully legally use all the privileges granted to it by the treaty. Legal basis for the look-through approach concept in sample regulations At the outset, it should be noted that while there is a definition of the beneficial owner in Polish law, the look-through approach is not directly regulated in domestic sources of law. However, this does not mean that there is no normative basis for this concept. Very often, the look-through approach is visible in the content of international agreements on double taxation, as well as in the case law of administrative courts and interpretations of tax authorities. First of all, the Organisation for Economic Co-operation and Development Model Convention on Taxes on Income and on Capital (hereinafter referred to as the OECD Model Convention) should be taken as a point of reference. Its current wording was adopted by the Council of the Organisation for Economic Co-operation and Development on 21 November 2017. Article 11 paragraph 2 of the OECD Model Convention contains a model beneficial owner clause. It is worth noting here that the OECD Model Convention does not constitute a source of law in the strict sense, but its content, accompanied by commentaries, is an important instrument in the interpretation of the provisions of international law concerning double taxation and the privileged status of the beneficial owner . Furthermore, in the light of the judgment of the Supreme Administrative Court of 26 July 2022, reference number II FSK 1230/21 concerning, among others, beneficial owner status, when interpreting the BO clause in Polish law, it is necessary to refer to the OECD Model Convention, which results from the thesis: "For a proper understanding of this concept, it is necessary to use the Commentary to the Model Convention of the Organisation for Economic Co-operation and Development (hereinafter: "OECD MC") (...) The OECD MC is a model for the construction of double taxation treaties, and using the commentary developed therefor ensures a state in which entities that are addressees of the norms contained in these treaties will interpret them in a similar manner". This ruling was criticised, but it continues to shape the case law of administrative courts and, consequently, legal transactions in Poland. Moreover, as the name suggests, the OECD Model Convention contains model regulations that are often transferred to international double taxation treaties. Going further, it is necessary to indicate specific bilateral agreements binding Poland and foreign countries, which directly provide for the application of the look-through approach or this concept has been adopted in their interpretation on the basis of the case law of administrative courts and the interpretation developed by tax authorities. The provisions of these international agreements with such content are referred to in the doctrine as beneficial owner clauses (also: BO clauses). The following paragraphs present examples of beneficial owner clauses present in international agreements binding Poland concerning interest, dividends and royalties. In the current situation, the case law concerning clauses of this type for interest is much richer, which may result from various treaty regulations on this issue. Therefore, this issue is described in more detail. A classic example of a treaty providing for the look-through approach is the Convention between the Republic of Poland and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital, done in Bern on 2 September 1991 (Journal of Laws of 1993, No. 22, item 92, as amended; hereinafter referred to as the Polish-Swiss Convention). The beneficial owner clauses contained in this convention include the provisions of Article 10 sec. 2 (BO clause for dividends), Article 11 sec. 2 (BO clause for interest) and Article 12 sec. 2 (BO clause for royalties). The second of these requires a more extensive discussion. Article 11 sec. 2 of the Polish-Swiss Convention refers to the concept of “person entitled to interest”. It is on the basis of this provision that the Supreme Administrative Court in its judgment of 13 December 2013, file reference no. Act II FSK 2873/11, stated that the "person entitled to interest" under the Polish-Swiss convention is the actual, i.e. final, recipient of the payment, which was an important milestone in introducing the look-through approach concept in the practice of international tax law in Poland. The cited ruling is often cited by administrative courts in the context of applying LTA in Poland in the context of many international agreements on the avoidance of double taxation. An analogous term for the person entitled to interest is used in Art. 11 sec. 2 of the Agreement between the Republic of Poland and the Federal Republic of Germany on the Avoidance of Double Taxation with respect to Taxes on Income and on Capital, signed in Berlin on 14 May 2003 (Journal of Laws of 2005, No. 12, item 90; hereinafter referred to as: the Polish-German Agreement) and Art. 11 sec. 2 of the Agreement between the Republic of Poland and the Republic of Austria on the Avoidance of Double Taxation with respect to Taxes on Income and on Capital, signed in Vienna on 13 January 2004 (Journal of Laws of 2005, No. 224, item 1921 as amended; hereinafter referred to as: the Polish-Austrian Agreement). The case law concerning the Polish-German Agreement confirms that under Art. 11 sec. 2 of the Polish-German Agreement, the person entitled to interest is considered to be an entity with the status of beneficial owner, and therefore the beneficial owner. These agreements also provide for the application of the look-through approach concept also for dividends and royalties, which in both of them are regulated by the provisions of Art. 10 sec. 2 and Art. 12 sec. 2, respectively. As for Polish-American relations, the issue of double taxation is regulated by the Agreement between the Government of the Polish People's Republic and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Washington on October 8, 1974 (Journal of Laws of 1976, No. 31, item 178; hereinafter: the Polish-American Agreement of 1974). The BO clauses present in the Polish-American Agreement of 1974 are provided for in Article 11, Section 2 for dividends, Article 12, Section 2 for interest, and Article 13, Section 2 for royalties. In the context of interest, the entity with the status of beneficial owner is referred to as the "interest recipient." It is worth bearing in mind, however, that the Polish-American agreement of 1974 signed during the Polish People's Republic was to be replaced in the future by the Convention between the Republic of Poland and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed in Warsaw on 13 February 2013 (hereinafter: the Polish-American Convention of 2013). The Polish-American Convention of 2013, in the context of BO clauses, provides for regulations similar to the Polish-American Agreement of 1974, although not identical. For example, under the new convention, the beneficial owner clause for dividends present in Article 10 contains more exceptions to the general rules for the application of the look-through approach concept. In addition, the new convention contains a separate provision on the status of beneficial owner in the context of branch profits in Article 12. It is therefore worth familiarizing with the content of each of the provisions of the new convention separately. The 2013 Polish-American Convention provides for a BO clause for dividends in Article 10, for interest in Article 11, for branch profits in Article 12 and for royalties in Article 13. Another example of a treaty providing for the look-through approach is the Convention between the Government of the Republic of Poland and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed in Stockholm on 19 November 2004 (Journal of Laws of 2006, No. 26, item 193, as amended; hereinafter referred to as the Polish-Swedish Convention). The Polish-Swedish Convention provides for BO clauses for dividends – in Art. 10 sec. 2, interest – in Art. 11 sec. 1, and royalties in Art. 12 sec. 2. As regards the issue of interest, Art. 11 sec. 1 of the Polish-Swedish Convention refers to the term “beneficial owner”. Thus, in Art. 11 sec. 1 of the Polish-Swedish Convention clearly shows the concept of the look-through approach, in the light of which an entity transferring interest to another entity under obligations between them will not be the "beneficial beneficiary" to whom the rule of the cited provision can be applied. In turn, the Convention between the Republic of Poland and the Republic of Slovenia for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital, concluded in Ljubljana on 28 June 1996 (Journal of Laws of 1998, No. 35, item 198; hereinafter referred to as the Polish-Slovenian Convention) assumes in Article 11 sec. 2 that in order to benefit from preferential tax rates, the recipient of interest must be its owner, which clearly indicates the application of the look-through approach concept. A contrario, a recipient of interest who is not its owner cannot benefit from this privilege. An analogous solution is provided for in Article 11 sec. 2 of the Agreement between the Republic of Poland and the Republic of Estonia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, concluded in Tallinn on 9 May 1994 (Journal of Laws of 1995, No. 77, item 388; hereinafter referred to as the Polish-Estonian Agreement). Both of these treaties, apart from the BO clause for interest, provide for analogous provisions for dividends and royalties – in Art. 10 sec. 2 and Art. 12 sec. 2 of each of them, respectively. A similar solution is provided for in the Convention between the Government of the Republic of Poland and the Government of the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Seoul on 21 June 1991 (Journal of Laws of 1992, No. 28, item 126, as amended; hereinafter referred to as the Polish-South Korean Convention), in particular its Art. 11 sec. 2, which also uses the term beneficial owner. In the context of the Polish-South Korean Convention, there is a line of case law of the Voivodship Administrative Court in Gliwice, which applies the LTA to this international agreement and requires the concept of “beneficial owner” to be interpreted as an entity with the status of beneficial owner. That line of case law remains unquestioned by the Supreme Administrative Court. Furthermore, the Polish-South Korean Convention provides in Art. 10 sec. 2 and Article 12(2) BO clauses for dividends and royalties, respectively. It is also worth referring to a very specific case in which a bilateral agreement does not contain a beneficial owner clause. For example, the Agreement between the Government of the Polish People's Republic and the Government of the French Republic on the Prevention of Double Taxation with respect to Taxes on Income and Capital (Journal of Laws of 1977, No. 1, item 5; hereinafter referred to as the Polish-French Agreement) in Article 11 does not provide for such a clause for interest, although the provisions of the Polish-French Agreement provide for such clauses for dividends in Article 10, paragraph 2, and for royalties in Article 12, paragraph 2. Nevertheless, in the light of the judgment of the Supreme Administrative Court of 29 June 2018, file reference II FSK 1674/16, as part of the taxation of interest under this treaty, there is an obligation to determine which entity has the status of the beneficial owner. As indicated, there are a number of countries whose tax residents can use beneficial owner clauses in the event of double taxation by the country of tax residence and Poland. These countries are subject to seemingly different regulations, the purpose of which is, however, the same for each of them – the application of the look-through approach concept, which is generally accepted in the practice of applying the law and in case law. Selected theses from court decisions and interpretations of tax authorities As for various specific cases and practical examples of the application of the look-through approach concept, they are provided by court decisions and interpretations made by tax authorities. In order to familiarize in depth with the discussed issue, it is also worth reaching for these sources. As mentioned earlier, for the practical application of this concept, the canon of the most important judgments includes the judgment of the Supreme Administrative Court of 13 December 2013, file reference II FSK 2873/11. Based on this judgment, an entire line of case law of administrative courts was built, which sets the framework for the application of the look-through approach concept in Polish legislation. As for the general definition of a beneficial owner in international tax law, it is worth referring to the factual justification of the previously cited judgment of the Provincial Administrative Court in Opole of 24 July 2024, file reference I SA/Op 112/24. The cited judgment clearly characterizes the attributes of the beneficial owner, the importance of BO clauses for combating the phenomenon of treaty shopping and the typical forms of unauthorized, abusive use of these provisions known in practice. There are two of them: substitutes and substitute companies. Substitutes are all kinds of intermediaries not authorized to effective exercise of the right to dispose of a given stream of income. In turn, the substitute company in the light of the judgment: "is considered a taxpayer in respect of the passive income obtained, which is attributed to it in the country of residence. Nevertheless, due to the need to combat tax avoidance, it was decided to exclude it from the scope of the term "beneficial owner". The substitute company is subject to exclusion from the scope of the term "beneficial owner" only when it has a very narrow scope of rights in relation to the income obtained". Moreover, with respect to the beneficial owner clause for interest (although this principle also applies to other clauses of this type), it is worth familiarizing with the thesis expressed in the judgment of the Provincial Administrative Court of 4 February 2020, reference number I SA/Gl 1488/19: "in order to meet the condition resulting from the above provision, the owner of the interest should also be its final recipient. It is not about the "recipient of the interest" being the direct recipient, but about being the actual recipient (and not an intermediary) the owner, and therefore the "person entitled" to the interest. In other words, the last entity in the chain of "interest" transfer transactions being its owner and having its registered office in the territory of the other contracting State". It is also worth mentioning that the case law of the Supreme Administrative Court often refers to other conventions for the interpretation of BO clauses. In the light of the judgment of the Supreme Administrative Court of 26 July 2022, file reference II FSK 1230/21, such a convention is the OECD Model Convention (i.e. a soft law instrument in international law serving to interpret its actual norms). In turn, in the light of the judgment of the Supreme Administrative Court of 12 August 2021, file reference II FSK 126/19, such a convention is the Vienna Convention on the Law of Treaties. As for the acts of interpretation made by tax authorities regarding general rules in this area, the Tax Explanations of 25 September 2023 regarding the collection of withholding tax issued by the Minister of Finance come to the fore, which contain a detailed discussion of the concept of the beneficial owner. In addition, there is a thesis there: "it should be assumed that the concept of "beneficial owner" applies in a given DTT regardless of whether it contains such a clause directly in relation to dividends, interest or royalties. Consequently, there is no basis for differentiating the payer's obligations in the scope of due diligence by distinguishing DTTs containing and not containing an explicit reference to the concept of the beneficial owner" (DTT in the text of the explanations means any international agreement on the avoidance of double taxation). Moreover, in the context of general issues, attention should be paid to the position of the Director of the National Tax Information, according to which the application of the look through approach is based on the following assumption: "if the beneficial owner of the receivable is an entity other than the one to which payments are made by Polish withholding tax payers, the provisions of the relevant agreement concluded with the country of residence of that taxpayer should be applied, and in the case where the taxpayers are Polish tax residents, the obligation to collect withholding tax under Art. 26 in connection with Art. 21 sec. 1 item 1 of the CIT Act will not apply (as a consequence, there is no justification for applying the agreement)". As for more specific issues, it should be noted that it is commonly accepted among Polish tax authorities that various types of intermediary centres between service orderers and service providers do not have the status of a beneficial owner, regardless of whether the relationships between service orderers and intermediary centres consist solely of mutual agreements or result from the structure of a capital group. Furthermore, an example of an entity being the beneficial owner in the context of BO clauses is a shareholder (or stockholder) to whom a dividend is paid by a company that has generated income due to a transaction made with a third party. When it comes to interest related to a loan and its payment or capitalisation, the use of the look through approach is fully justified. In turn, in the context of interest related to the cash-pooling service, the Pool Leader is entitled to benefit from the privileged status only if it can be considered the beneficial owner of the interest. Summary Look-through approach concept has been successfully used for over a decade in the practice of applying international tax law in Poland in relation to various tax residences. Solutions enabling the successful application of this concept are provided for by both domestic legislation and international agreements binding Poland. Over the years, a relatively coherent line of case law of administrative courts has been formed in this area, which facilitates functioning in legal transactions. Moreover, interpretations made by Polish tax authorities have clearly defined the legal framework for BO clauses in specific situations occurring in market transactions, including intermediation between ordering parties and service providers, cash-pooling or the position of shareholders at the time of dividend payment. All this testifies positively to the reception of the look-through approach concept in Poland.   Bibliography: a) Legal acts: Convention between the Government of the Republic of Poland and the Government of the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Seoul on 21 June 1991 (Journal of Laws of 1992, No. 28, item 126, as amended); Convention between the Republic of Poland and the Republic of Slovenia for the avoidance of double taxation with respect to taxes on income and capital, concluded in Ljubljana on 28 June 1996 (Journal of Laws of 1998, No. 35, item 198). Convention between the Republic of Poland and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, concluded in Bern on 2 September 1991 (Journal of Laws of 1993, No. 22, item 92, as amended); Convention between the Government of the Republic of Poland and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed in Stockholm on 19 November 2004 (Journal of Laws of 2006, No. 26, item 193, as amended); Convention between the Republic of Poland and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Warsaw on 13 February 2013 (Journal of Laws of 2013, item 995); Agreement between the Republic of Poland and the Republic of Estonia on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, concluded in Tallinn on 9 May 1994 (Journal of Laws of 1995, No. 77, item 388); Agreement between the Government of the Polish People's Republic and the Government of the French Republic on the Prevention of Double Taxation with Respect to Taxes on Income and Capital (Journal of Laws of 1977, No. 1, item 5; hereinafter referred to as); Agreement between the Government of the Polish People's Republic and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Washington on October 8, 1974 (Journal of Laws of 1976, No. 31, item 178); Agreement between the Republic of Poland and the Federal Republic of Germany on the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, signed in Berlin on 14 May 2003 (Journal of Laws of 2005, No. 12, item 90); Agreement between the Republic of Poland and the Republic of Austria on the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, signed in Vienna on 13 January 2004 (Journal of Laws of 2005, No. 224, item 1921, as amended); The Act of 15 February 1992 on Corporate Income Tax (consolidated text: Journal of Laws of 2023, item 2805, as amended); Act of 21 June 2013 on the ratification of the Convention between the Republic of Poland and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed in Warsaw on 13 February 2013 (Journal of Laws of 2013, item 995). b) Case law and tax interpretations: Letter dated 16/10/2019, issued by: Director of the National Tax Information, 0114-KDIP2-1.4010.354.2019.1.JC, Withholding tax on interest paid within the cash pooling structure; Letter dated 2 December 2021, issued by: Director of the National Tax Information, 0111-KDIB1-2.4010.406.2021.4.SK, CIT settlements in connection with cash pooling; Letter dated 16/03/2022, issued by: Director of the National Tax Information, 0111-KDIB2-1.4010.15.2022.2.BJ, Withholding tax on IT services; Letter dated 6 July 2022, issued by: Director of the National Tax Information, 0111-KDIB1-1.4010.225.2022.4.AW; Letter dated 7 April 2023, issued by: Director of the National Revenue Information, 0111-KDIB1-1.4010.57.2023.2.SG, Withholding tax - payer's obligations; Letter dated August 11, 2023, issued by: Director of the National Tax Information, 0114-KDIP2-1.4010.313.2023.2.PP, Payment or capitalization of interest on a loan and the right to apply a preferential tax rate of 5%, taking into account the look through approach; Judgment of the Supreme Administrative Court of 13 December 2013, II FSK 2873/11, LEX No. 1530053; Judgment of the Supreme Administrative Court of 29 June 2018, II FSK 1674/16, LEX No. 2523677; Judgment of the Supreme Administrative Court of August 12, 2021, II FSK 126/19, ONSAiWSA 2022, No. 2, item 21; Judgment of the Supreme Administrative Court of 26 July 2022, II FSK 1230/21, LEX No. 3417791; Judgment of the Provincial Administrative Court in Gliwice of 4 February 2020, I SA/Gl 1488/19, LEX No. 2779869; Judgment of the Regional Administrative Court in Gliwice of 30 January 2020, I SA/Gl 1490/19, LEX No. 2798733; Judgment of the Provincial Administrative Court in Gliwice of 19/10/2021, I SA/Gl 885/21, LEX No. 3267196; Judgment of the Regional Administrative Court in Łódź of 18 June 2015, I SA/Łd 550/15, LEX No. 1748218; Judgment of the Provincial Administrative Court in Opole of 24 July 2024, I SA/Op 112/24, LEX No. 3755238.
16 January 2025
Press Releases

KIELTYKA GLADKOWSKI KG LEGAL acts before the Polish Supreme Court - the Polish Supreme Court creates the jurisprudence and creates new interpretation of law in the case handled by one of the senior lawyers from the team of KIELTYKA GLADKOWSKI KG LEGAL admitted to the Bar in 1982

In KIELTYKA GLADKOWSKI each court case is handled by a team that combines the experience of a senior statesperson with the fresh energy of a new generation of lawyers, and this combination of live human power accelerates the potential of winning a case in court. KIELTYKA GLADKOWSKI notes the achievement of our team, which includes the lawyer admitted to practice in 1982 (42 years of experience before common courts). The Polish Supreme Court verifies cases very rarely. Despite the fact that the Polish Supreme Court does not have to accept a given case for consideration, in one of our recent cases we convinced the Polish Supreme Court to review the case and verify the final unfavourable decision of our Client's case, with which the Client approached our firm at the last stage. KIELTYKA GLADKOWSKI’s litigation practice lawyers are authorized to represent their clients in commercial cases, also of a cross-border profile, before all courts, including the Supreme Court. The Client contacted our lawyers in the final phase of the case, i.e.: 1/ after two decisions of the social insurance body denying his rights; 2/ after two instances of a common court in the standard two-instance course, which verified the negative position of the administrative body. The history of the case shows that it is very difficult to convince the Polish Supreme Court, which is a special body in relation to lower courts. The Polish Supreme Court receives cases that have been verified multiple times, and the lawyer's task is to find particularly striking arguments to show that your case before the Supreme Court will serve other similar cases in the future. This is exactly what the lawyers of KIEŁTYKA GŁADKOWSKI managed to achieve in this case. Thanks to the actions of the lawyers of our law firm, the Polish Supreme Court will add another future decision based on our case, which will create a new line of case law. KIEŁTYKA GŁADKOWSKI KG LEGAL strives to exercise the utmost diligence in serving our Clients, and this case is proof that the activity of our lawyers is law-making. See more on our blog: https://www.kg-legal.eu/info/kg-legal-news/the-polish-supreme-court-creates-the-jurisprudence-and-creates-new-interpretation-of-law-in-the-case-handled-by-one-of-the-senior-lawyers-from-the-team-of-kieltyka-gladkowski-kg-legal-admitted-to-the/  
19 November 2024
Press Releases

KIELTYKA GLADKOWSKI KG LEGAL TAKES PART IN THE SURVEY FOR UPDATING THE UNCITRAL CROSS BORDER INSOLVENCY PRACTICE GUIDE WITHIN AMERICAN BANKRUPTCY INSTITUTE

KIELTYKA GLADKOWSKI KG LEGAL was invited to participate in a survey that contributes to UNCITRAL CROSS BORDER INSOLVENCY PRACTICE GUIDE. The United Nations Commission on International Trade Law (UNCITRAL) (French: Commission des Nations Unies pour le droit commercial international (CNUDCI)) is a subsidiary body of the U.N. General Assembly (UNGA) responsible for helping to facilitate international trade and investment. UNCITRAL is currently working on an updated version of the 2009 UNCITRAL Cross-Border Insolvency Practice Guide. The UNCITRAL Practice Guide collects experience and practical aspects of cooperation and communication in cross-border insolvency cases and cross-border insolvency agreements. The initiative is supported by a team of approximately 25 insolvency judges, practitioners, academics, and other professionals from across the globe. The survey aims to obtain information on the most relevant cases, practices and tools used in cross-border insolvency cooperation since 2009 to be included in an updated version of the UNCITRAL Practice Guide. KIELTYKA GLADKOWSKI KG LEGAL, whose lawyers are active members of the American Bankruptcy Institute, provided practical input on cross border aspects of insolvency and enforcement cases handled by our law firm. Specifically, we provided practical information on our experience in handling one of our most recent cases, namely cross border insolvency case where corporate bankruptcy petition was filed in a non-EU country and the local court issued the bankruptcy order that was to be then acknowledged by the Polish court. The challenging part was that in the period between the issuance of the judgment in another jurisdiction and the acknowledgement of the judgment in the Polish jurisdiction the debtor (not deprived of the management of the assets) disposed of a number of assets, including real properties. The question then arose what was the composition of the insolvency estate that constituted estate from which the creditors could satisfy their debts. Also, the legal problem was whether the transactions of the sale of real properties in the Polish jurisdiction before the valid acknowledgment of the foreign bankruptcy order should be classified as null and void or only defective, leading to the need of their annulment or challenging in a separate court procedure, for example by a court appointed receiver. Another case that contributed to the survey was our current case where the bankruptcy concerned an international bitcoin platform and the enforced assets constituted crypto accounts, making the enforcement challenging, as each jurisdiction has different laws treating crypto as nonmonetary asset. The advisory voice within UNCITRAL is not the only initiative of cooperation of our lawyers in ABI. Other activities within this organization include, for example, our latest article prepared for the periodical ABI International Committee on the topic of “Instrumental use of M&A procedures to avoid liability by debtors in Poland”: https://www.kg-legal.eu/info/kg-legal-news/the-article-of-kieltyka-gladkowski-lawyers-published-in-american-bankruptcy-institute-international-committee/ The lawyers of KIELTYKA GLADKOWSKI KG LEGAL highly value the possibility of cooperating with the specialists acting for the benefit of organizations such as UNCITRAL. In May 2023 the managing partners of our law firm visited the main headquarters of United Nations in New York. Please see more information and photo report: https://www.kg-legal.eu/info/kg-legal-news/kieltyka-gladkowski-kg-legal-takes-part-in-the-survey-for-updating-the-uncitral-cross-border-insolvency-practice-guide-within-american-bankruptcy-institute/  
06 November 2024
Press Releases

KIELTYKA GLADKOWSKI KG LEGAL to deliver a lecture at LSOS Summit 2024: Cultural and legal aspects of entering the Middle East and Africa (MEA) market of medicines, medical devices and dietary supplements.

We are proud to share the news that KIELTYKA GLADKOWSKI KG LEGAL will take an active part in Life Science Open Space Summit 2024. This is a flagship business and conference event organized annually for over a decade by the largest organization in the health and environmental protection market in Poland, LIFE SCIENCE CLUSTER POLAND, with the status of a KEY NATIONAL CLUSTER, founded by both leaders among Polish biotechnology companies (e.g. SELVITA) and by educational institutions of higher education (Jagiellonian University). KIELTYKA GLADKOWSKI KG LEGAL is a proud member of the Life Science Cluster. On behalf of KIELTYKA GLADKOWSKI KG LEGAL, the lecture will be delivered by Zaid Jaber, Pharmacy BSc and IP specialist within pharma patents. Zaid cooperates with KIELTYKA GLADKOWSKI KG LEGAL in connection with his activities at the Jagiellonian University within New Technologies and IP law. KIELTYKA GLADKOWSKI KG LEGAL highly values its international environment of cooperation and has aspirations to become the platform for specialists within international law and life sciences sector. During his presentation, Zaid will share very practical information on how to enter MEA pharma markets, with regard to certification, regulatory matters and primarily cultural and religious differences and challenges. Zaid will focus on the so-called Halal certification and the rules and practical recommendations of how to obtain this certificate. Halal certification applies to the food, cosmetics, and pharmaceuticals sectors, confirming that a product is manufactured in full compliance with Islamic law, does not contain any forbidden components, and has not come into contact with any substances considered impure. This certification is granted to ensure Islamic consumers that their religious precepts have been respected and that the product maintains a high level of hygiene and safety. Please see more on the problem of entering MEA markets with pharma products on our blog: https://www.kg-legal.eu/info/pharmaceutical-healthcare-life-sciences-law/halal-certification-for-medicinal-products/  
05 November 2024
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