In accordance with PS Directive as implemented into Polish law, dividends are exempted from withholding tax on condition a set of statutory requirements is met.
The most important of those requirements are that the recipient:
- is subject to income tax on all of its worldwide income, wherever derived, in Poland or an EU or EEA Member State, and
- has directly held for an uninterrupted period of two years not less than 10 % of the share capital of the company paying the dividend, and
- has not enjoyed an exemption from income tax on all of its worldwide income, wherever derived.
The Provincial Administrative Court in Lublin (“PAC”) has recently rendered several disturbing judgments (e.g. judgment of 05.04.2023 in case no. I SA/Lu 100/23, of 19.05.2023 in case no. I SA/Lu 87/23, of 07.06.2023 in case no. I SA/Lu 243/23) and a further series of adverse decisions of this court should be expected.
According to PAC, the requirement of not enjoying a tax exemption on worldwide income, wherever derived, should be equated with the requirement that the dividends received by the beneficial owner must be subject to effective taxation in its home country.
This position contradicts the existing construal of PS Directive provisions implemented into Polish law. This is surprising, considering that the PS Directive exemption method was expressly chosen by the Polish legislature itself for dividends paid to Polish companies.
Currently the PAC’s taxpayer-unfriendly judgments apply to dividend recipients from Cyprus, Netherlands and Luxembourg.
PAC has so far denied the exemption to:
- holding companies from the Netherlands on account of them using the so-called participation exemption, which is an exemption from corporations tax on profits of Dutch companies related to shares and participation interests;
- to a Luxembourgian reserved alternative investment fund on account of it being exempt on a type-of-income basis from tax on income from holdings of securities that qualify as risk capital or from the sale, contribution, or liquidation of such securities;
- to a Cyprus-based holding company on account of it enjoying a type-of-income exemption from tax on interest and dividends under Cypriot law.
All the above PAC judgments are not final and definitive (prawomocne) yet, having been appealed to the Supreme Administrative Court.
We keep monitoring PAC’s decisions on this subject.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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