By Frank J. Dmuchowski
The 2013 Tax Treaty signed between the United States and Poland is a very comprehensive document is written with a good deal of legalese and softness in the language which provides both countries with a wide range of options which they can place in their respective tax codes.
A full copy of the treaty in both English and Polish can be found on the national website of the Polish American Congress (pac1944.org). The Polish American Congress has been very active in presenting the case for the elimination of double taxation on Social Security, pension and other benefits. This constant drumbeat over the years by the Polish American Congress has helped to insure that the issue of double taxation did not fall through the cracks during recent multi-year treaty negotiations between the United States and Poland as was the case with the 1974 Tax Treaty.
At the May 2013 National Directors meeting in Chicago the Polish American Congress has created a standing committee to be chaired by Zygmunt Staszewski who is the Secretary of the Long Island Division. The purpose of this standing committee is to look into the tax treatment of certain payments (Social Security, pensions etc.) made to individuals residing in Poland. This is part of the continuing effort of the Polish American Congress to insure that the treaty language allows for the expected tax treatment of payments involving Social Security. pension, annuities etc. to individuals residing in Poland by focusing on the issue of double taxation.
This standing committee reports directly to the National Executive Committee of the PAC which is chaired by President Frank Spula. The National Executive Committee is the final decision maker and approver of any actions to be taken. Part of their decision making process will be take into consideration the recommendations of this new standing committee.
If the treaty is found to be significantly deficient in some way then it is reasonable to expect that the Polish American Congress through the National Executive Committee will once again become appropriately pro-active. The creation of a standing committee centered within the Long Island Division is important and reflects an appropriate long view on the issue of double taxation. The long view is important as the treaty may not be ratified by the United States Senate for several years. Also the treaty is beginning to meet with some resistance in Poland as it is increasingly viewed as ceding too much to the United States.
Hot Button: The Full Exchange of Information Between the United States and Poland!
Although most individuals will primarily look at the elimination of double taxation they may overlook a significant portion of the treaty dealing with the elimination of tax evasion—as defined by a particular country’s tax code.
This note of caution is reinforced by a statement from the February 13, 2013 United States Department of Treasury press report on the treaty which states in no uncertain terms: “As consistent with U.S. tax treaty policy and the international standard for tax information exchange, the new treaty provides for the full exchange of information between the competent authorities to facilitate the administration of each country’s tax laws.” This is the portion of the treaty that may well prevent it from going before the United States Senate for a ratification vote for some period of time. There is more information on this issue in my radio comments which are presented below.
Structure of this Tygodnik Polski Article
This article as presented in this May 28, 2013 issue of Tygodnik Polski is structured into three major sections. The first section presents the comments which I made during the Polish American Congress Michigan Division’s segment of the Polish Varieties Program on May 18, 2013. My comments deal primarily with the critical issue of when the tax treaty is likely to come into effect. It also deals with why I believe it most likely will not come into effect for several years.
In the next two major sections I will present -in English and Polish– Article 18 of the tax treaty o which deals with pension, Social Security, annuities, alimony and child support issues. This is the portion of the treaty which is most likely of greatest importance to the majority of individual tax payers. There are other Articles of the Treaty which addresses some general issues surrounding earned income which may in turn impact the application of Article 18.
I am providing this information in order to support the cautionary point that a reading of the treaty may not be sufficient to make a full decision on what your taxes are likely to be. In fact one has to look at how the treaty is interpreted by the IRS and becomes part of the United States tax code. (Similarly for Poland). It is for this reason that one may want to contact a very competent tax adviser familiar with international tax issues between Poland and the United States. Please note that I am not giving any tax advice.
Comments Regarding the 2013 Tax Treaty Between the United States and Poland as Presented on Polish Varieties Radio Program during the KPA segment on May 18, 2013
“Good morning Jurek (Różalski) and thank you for the opportunity to address your audience during the Polish American Congress segment of your program.
I am very sorry, that I do not speak Polish very well consequently I will be delivering my remarks in English on the important 2013 Tax Treaty between the United States and Poland.
Today, I will be discussing some aspects of the Tax Treaty, which I will also write about in more detail in the May 29th issue of the Tygodnik Polski
First of all let me state that I am not giving any tax advice. It is important to remember since international tax issues and tax treaties are complex it is best to very speak cautiously and carefully about these issues. Additionally it may be important for someone to consider consulting with an attorney who specializes in international tax questions regarding matters between the United States and Poland.
I would now like to address several important issues related to this tax treaty. As many of you are aware the 2013 Tax Treaty was signed in Warsaw by the American Ambassador to Poland Stephen Mull and Poland’s Deputy Finance Minister Maciej Grabowski on February 13th.
It is critically important for everyone to keep in mind that this treaty does not take effect until it is ratified by the United States Senate. There is also a similar process going on in Poland.
For your information, “No treaty entered into by the United States can take effect until it ratified by a vote in the United States Senate”. Normally a vote confirming a tax treaty between the United States and another country traditionally sails through the United States Senate without any problems. However the situation today is very different.
The situation today is different because Rand Paul the Republican Senator from Kentucky is exercising his privilege, as a Senator, to block a number of tax treaties from even reaching the floor of the U.S. Senate for a ratification vote.
Senator Paul is concerned that recent treaties would give foreign governments too much access to personal information about United States citizens. His views are also shared by a number of conservatives and conservative groups in the United States.
Since 2011 Senator Paul has single handedly blocked the U.S. Senate from voting on tax treaties involving Switzerland, Hungary and Luxembourg.
Currently there are at least six other treaties awaiting Senate approval. They involve Chile, Spain, Japan, Norway, Great Britain and of course Poland. It is likely that Senator Paul may also block these treaties from being ratified.
I want to make it very clear, that Senator Paul’s actions should in no way be viewed as anti-Polish. In fact, he is very concerned about protecting unnecessary tax information on American Citizens from going to foreign countries, – even if those countries are our strong allies. Given what he has done since 2011 it is possible that he will also block the tax treaty with Poland.
The question now becomes; “what does it mean to those Americans and others who earned a living in the United States and are now living in Poland?”
Simply their taxes will still be calculated according to the 1974 Tax Treaty between the United States and Poland. The 1974 treaty will be in effect until the new treaty is ratified by the United States Senate and the Polish government. For now double taxation for individuals and other entities will continue. To repeat; “for now double taxation for individuals and others will continue”.
You might ask, “How long could this situation last?”
Since Senator Paul is a potential 2016 candidate for the United States Presidency, the pending tax treaty may take several years before it is ratified.
Further complicating the issue is the recent scandal involving the Internal Revenue Service of the United States, related to the extra scrutiny given to various conservative groups, including the Tea Party. The Tea Party is a strong supporter of Senator Paul. Many of his supporters and others now believe that his trust for the Internal Revenue Service is very very low.
In my opinion the 2013 Tax Treaty with Poland would most likely come to a vote in the United States Senate closer to 2015. It could be later if Senator Paul decides to makes a run for the United States Presidency.
My next point is that 2013 tax treaty does not simply deal with the issue of elimination of double taxation. It also deals with the question of preventing some forms of tax avoidance. This is the place where there are many unanswered questions/dealing with the sharing of information on American and Polish citizens between both governments.
My last point is the apparent increasing resistance to this tax treaty that is now seriously developing in Poland. In fact, the longer it takes to ratify the treaty in the United States the greater the potential for this to become a significant political issue in Poland. Of course, Poland has its own ratification process which might further complicate the situation.
In conclusion, the 1974 United States-Poland Tax Treaty is likely to be in effect for several more years. Before the 2013 Tax Treaty is ultimately ratified there most likely will be many issues regarding the transfer of personal information about United States citizens to Poland and vice-versa that absolutely need to be resolved.
Thank you!” (End of prepared remarks for Polish Varieties Program.)
Presentation of Article 18 in English and Polish on Treatment of Pensions, Social Security, Annuities, Alimony and Child Support
The next sections will present the actual wording in the tax treaty dealing with the Article 18 which addresses pensions, social security etc. The language in Article 18 presents a broad statement on elimination of double taxation. However “How Article 18 is actually written in the tax code is what ultimately determines the individuals tax liability.”
Because some of the various Articles within the tax treaty are interconnected it is also important to be familiar with significant portions of the entire treaty. At the same time, reading the cited Article 18 does give a real flavor for the language of the entire treaty. It also allows any readers likely to be impacted by the 2013 Tax Treaty to have a possible basis for asking more specific questions of their tax adviser.
Article 18 of 2013 Tax Treaty
PENSIONS, SOCIAL SECURITY, ANNUITIES,
ALIMONY, AND CHILD SUPPORT
1. Pensions, annuities and other similar payments made to and beneficially owned by a
resident of a Contracting State shall be taxable only in that State.
2. Notwithstanding the provisions of paragraph 1, pensions and other similar payments
arising in a Contracting State that, when received, would be exempt from taxation in that State
if the beneficial owner were a resident thereof shall be exempt from taxation in the
Contracting State of which the beneficial owner is a resident.
3. Notwithstanding the provisions of paragraph 1, payments made by a Contracting State
under the provisions of the social security or similar legislation of that State to a resident of
the other Contracting State or to a citizen of the United States may be taxable only in the firstmentioned State.
4. Where an individual who is a resident of one of the Contracting States is a member or
beneficiary of, or participant in, a pension fund that is a resident of the other Contracting
State, income earned by the pension fund may be taxed as income of that individual only
when, and, subject to the provisions of paragraph 1, to the extent that, it is paid to, or for the
benefit of, that individual from the pension fund (and not transferred to another pension fund
in that other Contracting State).
5. Alimony paid by a resident of a Contracting State to a resident of the other
Contracting State and periodic payments for the support of a child made pursuant to a written
separation agreement or a decree of divorce, separate maintenance, or compulsory support,
paid by a resident of a Contracting State to a resident of the other Contracting State, shall be
exempt from tax in both Contracting States. The term “alimony” as used in this paragraph
means periodic payments made pursuant to a written separation agreement or a decree of
divorce, separate maintenance, or compulsory support, which payments are taxable to the
recipient under the laws of the State of which he is a resident.
EMERYTURY, UBEZPIECZENIA SPOŁECZNE, RENTY
KAPITAŁOWE, ALIMENTY, ŚWIADCZENIA NA RZECZ DZIECI
1. Emerytury, renty kapitałowe i inne podobne świadczenia wypłacane rzeczywistemu beneficjentowi mającemu miejsce zamieszkania w Umawiającym się Państwie, podlegają opodatkowaniu tylko w tym Państwie.
2. Bez względu na postanowienia ustępu 1, emerytury i inne podobne świadczenia powstające w Umawiającym się Państwie, które w momencie uzyskania byłyby zwolnione z opodatkowania gdyby rzeczywisty beneficjent miał miejsce zamieszkania w tym Państwie, są zwolnione z opodatkowania w Umawiającym się Państwie, w którym rzeczywisty beneficjent ma miejsce zamieszkania.
3. Bez względu na postanowienia ustępu 1, płatności dokonywane przez Umawiające się Państwo zgodnie z postanowieniami przepisów o ubezpieczeniu społecznym lub podobnych przepisów tego Państwa na rzecz osoby mającej miejsce zamieszkania w drugim Umawiającym się Państwie lub obywatelowi Stanów Zjednoczonych, podlegają opodatkowaniu tylko w pierwszym wymienionym Państwie.
4. Jeżeli osoba fizyczna, mająca miejsce zamieszkania w jednym z Umawiających się Państw, jest członkiem lub beneficjentem, lub uczestnikiem funduszu emerytalnego, mającego siedzibę w drugim Umawiającym się Państwie, to dochód osiągnięty przez fundusz emerytalny może zostać opodatkowany jako dochód tej osoby fizycznej tylko w takim przypadku i, z zastrzeżeniem postanowień ustępu 1, w takim zakresie, w jakim dochód ten został wypłacony z funduszu emerytalnego osobie fizycznej, lub na jej rzecz (a nie przekazany do innego funduszu emerytalnego w tym drugim Umawiającym się Państwie).
5. Alimenty wypłacane przez osobę mającą miejsce zamieszkania w Umawiającym się Państwie osobie mającej miejsce zamieszkania w drugim Umawiającym się Państwie oraz okresowe płatności na utrzymanie dziecka dokonywane zgodnie z postanowieniami pisemnej umowy o separacji lub orzeczeniem o rozwodzie, separacji lub przymusowym świadczeniu alimentacyjnym, wypłacane przez osobę mającą miejsce zamieszkania w Umawiającym się Państwie osobie mającej miejsce zamieszkania w drugim Umawiającym się Państwie, będą zwolnione z opodatkowania w obu Umawiających się Państwach. Określenie „alimenty” w
rozumieniu niniejszego ustępu oznacza okresowe płatności dokonywane zgodnie z postanowieniami pisemnej umowy o separacji lub orzeczeniem o rozwodzie, separacji lub przymusowym świadczeniu alimentacyjnym, których odbiorca podlega opodatkowaniu, z uwagi na te płatności, zgodnie z prawem wewnętrznym Państwa, w którym ma on miejsce zamieszkania.
At this time I would like to acknowledge the support and encouragement of Mariusz Szajnert, president of the Michigan Division of the Polish American Congress, Jurek Różalski, Director of the Polish Varieties Program and Ms. Alicja Karlic who is the Editor and Publisher of Tygodnik Polski to write this article and to be able to present it in slightly different formats in different media venues. This approach has allowed the 2013 Tax Treaty discussion to reach the maximum interested audience.
This treaty while overcoming some of the issues associated with double taxation of income received from social security, pensions etc. may still fail to be ratified in the United States Senate for some time. This will most likely be because of the “sharing of information clause” in the treaty to which Senator Rand Paul and other conservatives so strenuously object.
Senator Paul, under the rules of the United States Senate, is personally and singlehandedly, able to prevent the treaty from coming to the floor of the Senate for ratification vote. He has already used this strategy for several other treaties. The fact that the IRS appears to have targeted Tea Party and other conservative causes suggests that he is more likely to hold back on allowing any Tax Treaty from coming to the floor of the Senate for a ratification vote.
Also the longer the treaty is not ratified in both the United States and Poland, the more likely it will become a significant “political football” in Poland. Perhaps more than rivaling what is going on in America.
In closing, please remember that the treaty does not take effect until it is ratified in the United States Senate and at the appropriate level in Poland!