The Tax Practice has successfully represented two US investment funds in a tax dispute with the Polish tax authorities over a refusal to pay interest on income tax overpayments.

The dispute was resolved by the Supreme Administrative Court, which upheld the attorneys’ position that interest was due to the investment funds for the entire period in which the overpayment occurred, i.e. from the date the tax was unduly collected to the date it was refunded.

In the years 2013-2018, Polish joint-stock companies paid dividends to two US investment funds, but collected withholding tax (WHT) and paid it to the Polish tax authorities.

Having regard to the judgment handed down by the Court of Justice of the European Union on 10 April 2014 in Case C-190/12, the investment funds filed applications in 2018 for the overpayment to be acknowledged and refunded, indicating that income tax on dividends in the years 2013-2018 had been collected unduly. This was because the CJEU confirmed that Polish regulations were incompatible asthey exempted domestic investment funds from income tax but did not afford the same exemption to comparable foreign funds (contrary to the EU principle of the free movement of capital). Although the CJEU judgment was handed down in 2014, Poland has still not changed its laws, which continue to impose the obligation to collect income tax on dividends paid to foreign investment funds from outside the EU.

Having considered the investment funds' applications for a refund of overpayments with interest, the Polish tax authorities confirmed that, in light of the CJEU judgment referred to above, tax had been collected unduly and constituted an overpayment. However, the tax authorities refused to pay interest on the overpayment for the entire period from the date of the undue tax collection to the refund date, claiming that domestic regulations on interest on overpayments do not provide for this. This was also the position taken by the Voivodship Administrative Court in Warsaw when it dismissed the investment funds' appeals against the unfavourable tax decisions.

As a result of last resort appeals prepared by experts from DZP's Tax Practice and the arguments put forward at the hearing, the Supreme Administrative Court in judgments II FSK 1042/21 and II FSK 1043/21 overturned the appealed judgments of the Voivodship Administrative Court in Warsaw and the second instance tax decisions issued by the Director of the National Revenue Administration in Warsaw.

The Court upheld the arguments of the attorneys, who – based primarily on Community law and CJEU case law – demonstrated that Polish tax regulations limiting or preventing full interest on overpayments arising following the CJEU judgment are incompatible with EU law and should be applied in such a way as to enable interest to be charged on the overpayment for the entire period from undue collection to the refund date.

In the oral reasons for the judgment, the Supreme Administrative Court emphasised particularly that the attorneys had rightly cited the CJEU judgments, from which it follows that if a state has collected tax unduly in breach of Union law, the taxpayer is entitled not only to a refund of the unduly collected tax, but also to interest payments to compensate for the unavailability of that amount.

The client was represented at the Supreme Administrative Court hearing by Paweł Suchocki, Senior Tax Manager, while Artur Nowak, Co-Managing Partner of the Tax Practice, and Michalina Woźny, Senior Tax Consultant, were also previously involved in the advice and the case.