On 27 February 2025, the Court of Justice of the European Union ('CJEU') issued a significant judgment (case C-18/23) concerning the taxation of EU/EEA-based investment funds investing in Poland. The case concerned a Luxembourg-based specialised investment fund investing in Polish securities. The main issue was whether Polish tax legislation, which provides for exemptions for EU/EEA-based investment funds on condition that they are managed by external managing entities (the so-called 鈥楳anCo condition鈥�), is compatible with EU law.
Polish tax legislation provides for a corporate income tax exemption for EU/EEA-based collective investment institutions, subject to certain conditions. One of these conditions is that the fund must be managed by an external entity authorised by a relevant financial market supervisory authority. Until now, this has been a major problem for foreign investment funds that are self-managed (i.e. having their own internal managing bodies composed of individuals), which often could not benefit from the exemption for this reason. The practice of the Polish tax authorities and administrative courts in this regard to date has been ambiguous; in many cases the tax exemption has been denied to self-managed funds, in particular these that were not UCITS-compliant, similar as the fund in the case examined by the CJEU.
In its judgment of 27 February 2024, the CJEU found the Polish regulations applicable in this case incompatible with the principle of the free movement of capital as set out in Article 63 of the Treaty on the Functioning of the European Union. The CJEU emphasised that provisions imposing such a condition may discourage non-resident investment funds from investing in Polish securities and therefore constitute a restriction on the free movement of capital. The Court also pointed out that such a difference in treatment can be justified only if it concerns situations which are not objectively comparable or, failing that, if it is justified by overriding reasons relating to the public interest, but held that neither of these was applicable in the present case.
This ruling has significant implications for the practice of taxation of foreign investment funds in Poland. The CJEU has effectively opened the door for self-managed foreign investment funds to claim tax exemption on their Polish investments. This should apply both to future claims and to those that have been already closed (concluded by final decisions/judgments), where the exemption was denied due to failure to meet the contested condition. In the latter case, taxpayers should now be able to reopen such closed cases within relatively short statutory deadlines.
It is yet to be seen if the CJEU鈥檚 standpoint expressed in the judgment will translate into prompt changes in the Polish tax provisions in question or rather (similar as in case of third country funds and the CJEU judgment in case C-190/12) the foreign taxpayers will have to wait long years for legislative changes. If the latter scenario proves true, this may open the door for receiving late interest on tax unduly paid by these entities (in line with the CJEU standpoint expressed in the judgment in case C-322/22).
