The European Court of Justice has issued a judgment concerning the authority of Poland to grant a corporate income tax (CIT) exemption to investment funds depending on where their registered offices are located.

Polish law provides a CIT exemption for investment and pension funds based in Poland. This exemption has been valid since 1998. After Polish accession to the European Union, the European Commission initiated proceedings against Poland claiming that the Polish Corporate Income Tax Act (the CIT Act) discriminated against foreign investment and pension funds. As a result, in 2011, Poland extended the scope of the exemption to include funds from other states of the EU and EEA, provided that they fulfilled certain conditions. However, the Polish CIT Act does not refer to funds from outside the EU and EEA region.

The ECJ's judgment was made in the case of a fund based in the United States which applied for a refund of a CIT withheld in Poland in 2005 and 2006. The fund recognized that the tax was not due and applied to the relevant tax office for a refund. The tax office refused to pay the refund, stating that the Polish legislature limited the scope of CIT exemption to funds which have their registered offices in the EU and EEA.

The Polish court that examined the case had doubts as to whether this limitation of the exemption is compliant with EU law. Therefore, the court referred the case to the ECJ, particularly asking whether EU law contradicted local tax laws under which dividends paid to an investment fund with its registered office in a third state could not enjoy CIT exemption.

On 10 April 2014, the ECJ issued a judgment in which it stated that a member state may not exclude from exemption dividends paid by companies with their registered offices in Poland to an investment fund located in a third state if an undertaking to render mutual administrative assistance exists between those two states. However, the ECJ noted that it is the task of the national court to examine whether the contractual obligations between Poland and the country in which the foreign fund's registered office is located actually allow Polish tax authorities to verify the information provided by the investment funds and establish whether they carry out their business activities within a regulatory framework equivalent to the regulatory framework of the EU.

The ECJ's judgment is significant for investment funds based outside the EU and EEA that have obtained and/or obtain earnings from Poland. Foreign investment funds investing in Poland may benefit from the Polish CIT exemption provided they meet requirements stipulated in the Polish CIT Law; for instance, they shall be subject to taxation on their worldwide income, they shall be supervised, their assets shall be kept by a depositary.

Therefore, US investment funds investing in Poland should analyze whether they fall under the Polish CIT exemption for investment funds. If so, they will be entitled to claim the CIT collected by the withholding agents back from the Polish tax authorities. Moreover, the judgment may provide a basis for resuming proceedings in already concluded cases in which Polish tax authorities refused refund of the withholding tax collected by the withholding agents.