On February 27, 2025, the Court of Justice of the European Union (CJEU) delivered a pivotal judgment in case C-18/23, addressing the compatibility of Polish tax legislation with EU law. The case involved a Luxembourg-based Specialized Investment Fund (SIF), structured as a self-managed Société d'Investissement à Capital Variable (SICAV), which invested in Polish securities. The fund sought exemption from Polish corporate income tax (CIT) on income derived from these investments, invoking provisions applicable to EU/EEA-based investment funds.
The CJEU found that the Polish tax exemption framework, which granted CIT exemptions solely to investment funds managed by external entities authorized by a competent financial market authority, was incompatible with Article 63(1) of the Treaty on the Functioning of the European Union (TFEU). This article enshrines the principle of free movement of capital within the EU.
The Court reasoned that such a restriction could deter non-resident investors, particularly self-managed funds from other EU Member States, from investing in Poland, thereby constituting a barrier to the free movement of capital. The judgment emphasized that tax measures favoring certain management structures over others, without sufficient justification, could lead to indirect discrimination against foreign entities.
This ruling has significant implications for self-managed investment funds operating within the EU. Funds that were previously denied tax exemptions in Poland due to their internal management structures may now be eligible to reclaim withholding taxes (WHT) collected on income from Polish investments.
To pursue such claims, affected funds must submit formal requests to reopen closed tax cases. The deadlines are stringent: one month from the publication date of the CJEU ruling for tax authorities, and three months for administrative courts. Each case should be evaluated individually, considering the specific domestic regulations and the fund's circumstances.
The CJEU's decision underscores the necessity for Member States to align their tax legislation with EU principles, ensuring that domestic laws do not inadvertently discriminate against foreign entities. It also highlights the importance of considering the diverse management structures of investment funds across the EU, promoting a more inclusive and equitable investment environment.
For self-managed funds, this judgment not only opens avenues for tax recovery but also reinforces their standing within the EU investment landscape. It serves as a reminder of the critical role that EU institutions play in safeguarding the fundamental freedoms that underpin the Union's single market.
Our work focuses on providing outsourced withholding tax recovery services to safeguard your investments from over-taxation and save your time from burdensome processes.
