Ruling description

On June 25, 2015 the Director of the Tax Chamber in Katowice issued a tax ruling (ref. no. IPTPB3/4510-103/15-4/ PM) holding that the concept of ‘loan’ on the grounds of CFC regulation must be construed broadly, to include any transaction involving transfers of capital that must be returned with interest.

 ‘Controlled foreign corporation’ (CFC) is defined in the tax regulations in force as of January 1, 2015 as a corporation which, in addition to meeting several other criteria set out in statutory law, generates at least 50% of its revenue in the given tax year from sources listed in the applicable statutory law, including “interest and proceeds from loans of whatever kind”.

The case prompting the interpretation concerned a Polish taxpayer holding a stake in a Cypriot company which reported revenue from, among other things, financial operations, including interest from a variety of deposits (such as overnight bank deposits. This revenue may have accounted for more than 50% of the Cypriot company’s revenue which would make the company a controlled foreign corporation ?), as it also met the other statutory criteria for recognizing it as such. The Polish taxpayer applied for a tax ruling to confirm that the concept of ‘loan’ on the grounds of CFC regulations does not extend to cover bank deposits.

The Director of the Tax Chamber in Katowice disagreed, finding, in particular, that the broad construal of the concept of ‘loan’ in the above sense is suggested not only by its interpretation in the OECD Model Convention Commentary but also by the fact that Polish statutory law applies to “loans of whatever kind”


The tax ruling at issue marks a shift towards a more restrictive application of the CFC regulations, apparent also in the tax ruling by the Director of the Tax Chamber in Łódź dated June 18, 2015 (ref. no. IPTPB3/4510-101/15-2/ IR) in which disbursements of income achieved by an investment fund and disbursements of the fund’s profits from a transfer of its deposits were classified as passive revenue in the meaning of the CFC regulations. This approach leaves taxpayers with relatively little space to adapt to the new regulations, although, in fairness, some other interpretations are advantageous to taxpayers in some of the areas covered by CFC regulations, as is the case, for example, of the definition of actual business activity as applicable to investment funds or the notion of taxation conditions that are more advantageous than those provided for by Polish laws.

This restrictive approach by fiscal authorities has already been backed by some court rulings concerning CFCs against taxpayers. One example here is the judgment of the Provincial Administrative Court in Bydgoszcz of October 20, 2015 (case no. I SA/Bd 622/15) in which the Court found that a Cypriot company in which an investment fund holds a stake may be a CFC of a Polish taxpayer holding investment certificates issued by the fund. Similar positions had also been taken by the tax authorities, to mention but the tax ruling of July 3, 2015 issued by the Director of the Tax Chamber in Łódź (ref. no. IPTPB2/4511-175/15-4/KR) or the tax ruling of the Director of the Tax Chamber in Warsaw dated February 18, 2015 (ref. no. IPPB2/415-900/14-3/AS).

Polish taxpayers operating internationally are therefore advised to exercise far-reaching caution when appraising the effects of their operations through foreign corporate structures and take prompt action to restructure them, if necessary, to avoid the risk of revenue achieved by their foreign component being taxed in Poland based on CFC regulations. Otherwise, in the present environment, taxpayers appear to stand little chance of succeeding in tax proceedings or of successfully arguing their case in courts.