Landmark ruling for US investment fund in Polish tax case


On Friday, the Court of Justice of the European Union (CJEU) made a landmark ruling in a case between the Tax Office in Bydgoszcz in Poland and the Emerging Markets Series of DFA Investment Trust Company. This case follows a series of case where the CJEU dealt with the issue of investment funds claiming back withholding tax, specifically non-EU investment funds.

What this basically means is that non-EU investment funds are eligible for tax relief if the tax authorities in the country where it is based can verify that the domestic funds and non-EU funds are comparable, in terms of bilateral or multilateral agreements.

In this case, the issue stems from an investment fund based in the US that was investing in Poland between 2005 and 2006. The fund in question was hit with a withholding tax in Poland on dividends from its Polish investments, because the income tax exemption was at that point only applied to Polish investment funds. Since then, this exemption has been extended to funds based in the EU/EEA, subject to certain conditions.

The application for a refund from the US fund was based on the grounds that the tax was discriminatory and in contravention of EU law. The case was brought before the Polish administrative court, which referred it to the CJEU. The key questions in the CJEU hearing were a) whether the free movement of capital applies and b) whether the discriminatory treatment of non-EU funds can be considered as justified.


In this case, the CJEU confirmed that the freedom of movement of capital applies and could therefore be invoked by non-EU investors with portfolio investments in an EU Member State, if it were treated in a discriminatory way compared to investors of that Member State.

On the issue of whether the discrimination is justifiable, the court ruled that a restriction can only be accepted a) where the laws of a Member state link the entitlement to a tax exemption to certain conditions, compliance with which can be verified only by obtaining information from the non-EU Member State and b) because that non-EU Member State is not bound under an agreement to provide information, it proves impossible to obtain that information.

Although non-EU/EEA-based investment funds are not part of the European Union’s regulatory framework, this is not sufficient grounds for discrimination in itself. Because the the UCITS Directive doesn’t apply to investment funds established in non-EU Member countries, a requirement for these funds to be regulated like EU-resident investment funds runs counter to the principle of free movement of capital.

Although this case is set to be referred back to the Polish court to analyse the specific facts, this decision can be considered to be good news for non-EU investors such as Swiss investment funds, with regards to residual withholding taxes in Poland and other EU states.

For a detailed breakdown of the facts of this case and the implications for investors, visit the PwC news portal.