ECJ rules that dividends received by US funds investing in Polish companies may be exempt from withholding Tax; Polish law restricts free movement of capital

The European Court of Justice (ECJ), on April 10, ruled that Polish tax laws that exempt from withholding tax dividends paid to investment funds located in Poland and other EU countries, but that do not exempt dividends paid to funds located outside the EU, may be invalid because the laws restrict free movement of capital.

As a result, US investment fund, Emerging Market Series of DFA Investment Trust Company, which brought the action, and other similarly situated funds may be entitled to a refund of tax paid on dividends paid by Polish companies.

According to the ECJ, Polish courts must determine that the US and Poland’s mechanisms for the exchange of information are sufficient to enable Polish tax authorities to verify information provided to it by the US investment funds concerning their formation and conduct of business so as to establish that they operate within a regulatory framework equivalent to that of the European Union. If the mechanisms are sufficient, there would be no justification for the restriction on free movement of capital. Decision, News Release

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