Ruling description

The Provincial Administrative Court in Warsaw in rulings dated September 18, 2014 (case nos. III SA/Wa 1691/14, III SA/Wa 1692/12) and September 19, 2013 (case no. III SA/Wa 851/14) ruled on the CIT exemption for foreign investment funds with their registered office within and outside of the EU. In the rulings the court indicated the criteria for the tax exemption in light of rulings issued by the Court of Justice of the European Union and the purpose of introduction of the exemption by the Polish legislator.

The first of the court rulings refers to an American investment fund. The Supreme Administrative Court in Warsaw, considering the court rulings issued by the Court of Justice of the European Union, indicated that investment funds with their registered office outside of the EU are entitled to benefit from the CIT exemption irrespective of whether their business objects include granting loans or buying and selling real estate. In this case the prevailing criterion is the condition of comparability of a fund with its registered office outside the EU to Polish investment funds, and the possibility to exchange information with the state in which a given fund has its registered office in order to determine the rules governing the operation of the said fund.

The other ruling referred to a German investment fund operating without permission by the German financial supervision authorities, due to the fact that the said permission had been issued for the benefit of a company operating for and on behalf of the said fund, and not for the benefit of the fund itself.

The Supreme Administrative Court indicated that the fact that the fund conducts business activities without permission (in light of the circumstances that the internal law of a country of the registered office of a given fund does not require the said permission) does not mean that the fund may not benefit from the CIT exemption. In this case, the prevailing criterion for assessing the possibilities to benefit from the exemption is the purpose of its introduction. Application of only a literal interpretation of the provision which constitutes the exemption would result in the said regulation being in part a dead letter, because it introduces criteria which cannot be complied with by certain investment funds with their registered office in the EU. Hence, it is necessary to interpret the said provision, taking into account the purpose which the legislator had in mind when introducing it to the CIT Act.

Comment

The two rulings are the effect of the pending disputes with the tax authorities with respect to interpretation of the premises of the CIT exemption for funds with their registered office within and outside of the EU. As regards investment funds with their registered office in the EU, the fiscal authorities apply only a literal interpretation of the exemption in question, irrespective of the purpose for introducing it and the administrative court rulings which repeatedly stressed the different rules governing operations of investment funds in EU member states. The said differences, if the principle of comparability with Polish funds is satisfied, should not automatically result in deprivation of the right to the CIT exemption with respect to the said funds. Nevertheless, in some cases the differences seem to be significant enough for the courts to refuse the right to the CIT exemption with respect to the said funds, as was the case with the Cypriot PICIS funds. In view of the above, bearing in mind the fact that the wording of the provisions in question triggers controversies as to the intention of the legislator, it is the administrative court rulings which in the end shape in practice the criteria for application of the said exemption. It should be expected that the conditions for applying the CIT exemption for investment funds with their registered offices outside of the EU will be formed in a similar way. The rulings of the Court of Justice of the European Union in the case of Emerging Markets (C-190/12) with respect to the possibility for investment fund based in the US to benefit from the CIT exemption on the basis of a free flow of the capital may trigger controversies. Nevertheless, the rulings issued by the Polish administrative courts in this respect are positive for taxpayers. In light of the above, foreign funds should consider filing a reclaim motion and recover the undue tax paid in Poland.