Introduction

Over the past years, The States of Guernsey was certified by the Polish Ministry of Finance as a "tax haven" - a country with harmful tax competition in the area of income personal tax and corporate income tax. The end of April 2013 Guernsey has been removed from the list of countries applying harmful tax competition in the area of PIT and CIT in relation to Poland.
Then the Agreement between the Republic of Poland and the States of Guernsey for the avoidance of double taxation with respect to certain income of individuals has been agreed and signed in London on 8 October 2013.
This agreement will take effect on the 1st of January 2015. In the explanatory memorandum to the bill ratifying indicated the introduction of effective mechanisms for the avoidance of double taxation of income from employment and pensions paid to individuals working in the relations Poland – Guernsey, as the need and purpose of the conclusion of the above indicated Agreement, what also will involve improving the exchange of information between the competent authorities of the Contracting Parties.

The situation of seafarers before April 2013

Due to the fact that, in accordance with the Ordinance of the Minister of Finance on the determination of the countries and territories using the harmful tax competition in the field of income personal tax, which was in force before April 2013, The States of Guernsey was referred to as "tax haven", the income received by polish seafarers from employment exercised aboard a ship operated in international traffic by the enterprises which the place of effective management was situated in the States of Guernsey was fully taxed in Poland - the inability to benefit from the abolition relief.

The situation of seafarers from May 2013 to December 2014

In the period May 2013-December 2014, polish seafarers had the opportunity to benefit from the abolition relief in respect of income derived from employment exercised aboard a ship operated in international traffic by enterprises with the place of effective management in the States of Guernsey, because, as indicated above, the States of Guernsey has been removed from the list of countries applying harmful tax competition in relation to Republic of Poland.
Therefore, it was possible to apply Article 27 paragraph 9 of the PIT Act in the following wording: if a resident of Poland receives income from business outside of the territory of the Republic of Poland or income from sources outside the territory of the State which has not entered into an agreement for the avoidance of double taxation with the Republic of Poland, these incomes are combined with income from sources in the Republic of Poland. In this case, Poland shall allow as a deduction from the tax on the income of the resident, an amount equal to the income tax paid abroad.  Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such income derived from a foreign country.

Persons who received income from employment or from business abroad, to which the method of proportional deduction shall be applied, have the right to  the deduction from the tax, abolition relief, which is the amount representing the difference between the tax calculated in accordance with the method of proportional deduction and the tax calculated in accordance with the method of exemption with progression. In accordance with article 27g paragraph. 2 of the PIT Act the amount of the difference between the tax calculated in accordance with Art. Paragraph 27. 9 or 9a (The method of proportional deduction) and the amount of tax calculated on income from sources referred to in paragraph. 1, using the income to the principles laid down in Art. Paragraph 27. 8 ( The method of exemption with progression) shall be deducted.

The possibility to take advantage of the abolition relief does not depend on the taxation of foreign income in the source country. There is also no matter whether Republic of Poland has concluded or not an agreement for the avoidance of double taxation with that country. The bottom line is that the foreign income is taxable in Republic of Poland in accordance with the method of proportional deduction. This method is also applicable in case of a State, which has not entered into an agreement for the avoidance of double taxation with the Republic of Poland.

Deduction does not apply only in reference to income derived in the territory of the countries indicated in The Ordinance of the Minister of Finance on the determination of the countries and territories using the harmful tax competition in the field of income personal tax so-called “tax havens”. The States of Guernsey was not recognized by the Polish tax system as a \'tax haven\' in the period May 2013-December 2014, whereby taxpayers have the possibility to take advantage of the abolition relief.

Unfortunately, despite the above-mentioned regulations, some Polish Tax Offices, in the first phase of the proceedings, refuse to seafarers abolition relief of income derived from the above sources in the period May 2013 - October 2014,  for example Tax Office no. 2  in Gdynia.

The situation of seafarers from 1 January 2015.

The new agreement between the Republic of Poland and the States of Guernsey, which will take effect from in 01.01.2015, with respect to income from employment, constitutes that the remunerations received by a resident of a Contracting Party working in the territory of the other Contracting Party shall be taxable in the other Contracting Party, when employment continues more than 183 days in a 12 month period commencing or ending in the tax year. Remuneration derived in respect of employment exercised abroad a ship or aircraft operated in international traffic, may be taxed in the Contracting Party in which the lace of effective management of the enterprise is situated. The term "international traffic" means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in the territory of a Contracting Party, except when the ship or aircraft is operated solely between places in the territory of the other Contracting Party (art. 5, paragraph. 3 of the Agreement).

In accordance with the internal laws of the States of Guernsey only individuals with tax residence in the States of Guernsey are required to pay income tax.
Tax residency is determined as follows:
A person is considered to be resident in the States of Guernsey for a tax year if:
1) He is present 91 days or more in the States of Guernsey in a tax year, or
2) He is present 35 days or more in the States of Guernsey in a tax year and during the previous four tax years, was present 365 days or more in Guernsey.

A person shall be deemed to be a resident only in the States of Guernsey and the tax year if:
1) He is a tax resident in the States of Guernsey in accordance with section 1, in the tax year , and
2) He is not a resident of any other country in the tax year, and for the purposes of this section, a person is treated as a resident in any other country in the tax year only if he is present 91 days or more in the country in the tax year.

Due to the above, polish seafarer,  non-resident in the States of Guernsey who received income from the States in Guernsey which are the subject to settlement using the method of proportional deduction, is required to file a tax return in Poland, even if he doesn\'t  receive any income in Poland.
Polish seafarer who receive income from employment exercised abroad a ship operated in international traffic by enterprise with the place of effective management in the States of Guernsey which are the subject to settlement using the method of proportional deduction, in 2015, have right to deduction from the income tax, abolition relief, which is the amount representing the difference between the tax calculated in accordance with the method of proportional deduction and the tax calculated in accordance with the method of exemption with progression. Importantly, to the application of abolition relief, will not matter whether the Polish seafarer pay any tax in the States of Guernsey in tax year 2015.

Advances

These regulations impose to calculate and pay advances income personal tax calculated from the remuneration received by a seafarer at the lowest rate (ie. 18%) after deduction of expenses deductible allowances payable, social security contributions, paid by the 20th day of the following month after the month in which the taxpayer has received income to the Tax Office competent by the place of residence of the taxpayer, unless the seafarer requests to limitation of advances and receives a positive decision which limits advances to zero.
These advances Polish seafarers, should also pay in 2013 and 2014.

Application for limitation of advances

Pursuant to Article 22 paragraph 2a of The Tax Code it is possible to request to limitation of advances income personal tax. This application created many of procedural and interpretive problems in 2014.  Tax authorities in Poland adopted as a common position with limitation of advances after a few months in 2014. This position may also apply to the Agreement between the Republic of Poland and the States of Guernsey for the avoidance of double taxation, however the tax authorities interpret the provisions separately for each country (this position doesn\'t apply to abolition relief for Norway in 2014)
The tax authorities initiate inquiries for previous years as a result of application for limitation of advances. A Polish seafarer who wishes to submit applications should check their tax situation in previous years before submitting an application.

Hope of Application for limitation of advances, polish seafarers don\'t have to pay advances, only they are required to the settlement of a tax return for the year, in case of the States of Guernsey for 2015 year – until the 30th of April 2016.  The situation of polish seafarers employees aboard a ship operated in international traffic by the enterprise with the place of effective management in the States in Guernsey is analogous to the situation of the Polish seafarers on Norwegian ship-owners in 2014 (NIS vessels, other foreign flag) and Singaporean ship-owners from 01.01.2015 year.

Summation

To sum up, polish seafarer is required to report foreign income in tax office in the case of an employment exercised aboard a ship operated in international traffic by the enterprise in the place of effective management in the States of Guernsey from 1st of January 2015. At the same time, on the basis of article 27 g of the Act on income personal tax, seafarer shall have the right to abolition relief.  Abolition relief is only possible in the annual tax return (PIT-36), therefore, polish seafarer should pay advances for the entire year or submit an application for limitation of advances in 2015.

 Radca Prawny Mateusz Romowicz

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