Investment funds in some countries may claim Polish CIT refunds

By Artur Plutowski, EFS Group Sp.z.o.o.

Last year the European Court of Justice (ECJ) issued a judgement in case DFA Investment Trust Company vs. the Head of Tax Chamber in Bydgoszcz (C190/12). Generally, the case concerned investment funds benefiting from exemption in income tax (CIT). In particular, it referred to whether such exemption may depend on where the registered office of the investment fund is located.

According to Polish regulations, investment and pension funds based in Poland are exempt from CIT. It is worth mentioning that in 2011, due to infringement proceedings initiated by the European Commission, Poland extended the scope of the exemption and included funds from other European Union (EU) member states and EEA member states (under some conditions). However, investment funds located in non-EU and non-EEA member countries still remained outside the scope of the exemption.

The case resolved by the ECJ concerned the U.S.-based fund that applied for refund of the CIT paid on dividends  distributed in Poland, in both 2005 and 2006. DFA Investment Trust Company was managing Emerging Markets Series and claimed that the income tax paid was undue, and submitted a refund application to the relevant tax authority. The tax authorities refused the refund and rejected the application. The core argument was that Polish regulations limit the scope of exemption to investment funds with registered offices in either EU or EEA member states.

The District Administrative Court in Bydgoszcz DFA Investment Trust Company requested suspended issuance of its verdict due to doubts regarding compliance of Polish limitation with the EU regulations and referred the case to the ECJ. By referring this case to the ECJ, the Court sought to resolve the following issue: is the EU regulation contradicted by provisions adopted by the EU Member State under which dividends received by investment funds established in the USA may not benefit from CIT exemption?

The ECJ issued judgement 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 to establish whether they carry out their business activities within a regulatory framework equivalent to the regulatory framework of the EU.

This judgement has substantial impact for investment funds based outside both the EU and the EEA that have received or will receive earnings from Poland.

Such investment funds investing in Poland may benefit from the Polish CIT exemption provided that they meet
requirements listed in Polish CIT, for example (i) shall be subject to taxation on their worldwide income, (ii) shall be supervised or (iii) their assets shall be kept by a depositary.

Support is available to investment funds located outside the EU or the EEA, in countries such as Canada, Switzerland and the USA as well as in Asia, to review and analyse whether conditions listed in Polish regulations are met and if a particular fund may benefit from CIT exemption in Poland. If the outcome of the analysis is positive for any given investment fund, there is a refund entitlement. Assistance will also be provided to the claimant over the administrative process for claiming.

Please also note that the judgement may give basis for resuming proceedings in already concluded cases in which Polish tax authorities refused the refund of tax.

Artur Plutowski
EFS Group Sp.z.o.o., Lodz, Warsaw, Poland
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published: March 2015

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