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FDI: Financial incentive
On 25 November 2010, the Polish parliament adopted amendments in the tax legislation concerning foreign investment and pension funds. The changes involved the exemption from Corporate Income Tax (hereafter: CIT) for funds located in EU or other EEA countries, given they were already subject to tax in their country of origin.
The initial CIT exemption for investment and pension funds based in Poland has been in place since 1998.
The amendment was a reaction to the European Commission's letter of formal notice to Poland on 23 March 2007 and a reasoned opinion on 15 May 2009.
According to the Commission, however, the change in the taxation system did not fully eliminate tax discrimination with respect to foreign funds (press release from 16.6.2011, IP/11/720). The reasoning was that Polish investment and pension funds were freed from the tax unconditionally, whereas the same held for foreign funds only if they were taxed in their states of residence.
Therefore, on 16 June 2011, the Commission requested Poland to change its tax legislation again. The proceedings were then closed on 24 January 2013, after Poland changed its legislation to allow for unconditional CIT exemption for all funds located in the EEA.
Furthermore, in 2010, Emerging Markets Series of DFA Investment Trust Company, an American investment fund, requested the Polish tax authority to refund its CIT for the years 2005 and 2006. After the authority's rejected the request, the American company brought an action before the administrative court of Bydgoszcz, which then referred the matter to the European Court of Justice (hereafter: ECJ).
On 10 April 2014, the ECJ decided that "a Member State may not exclude from a tax exemption dividends paid by nationally established companies to an investment fund established in a non-Member State if there exists between the two States an obligation of mutual administrative assistance. It is however for the national court to examine whether the agreed mechanism for the exchange of information enables the tax authorities to verify the information provided by the investment fund." (Press release on 10.4.2014, No 16/14)
The ruling thereby allowed foreign funds not based in the EU or other EEA countries (but which have an obligation of mutual administrative assistance) to profit from the CIT exemption given they fulfil the requirements mentioned in the CIT Law. According to the Annexes to the Convention on Mutual Administrative Assistance in Tax Matters, the countries concerned are Albania, Argentina, Australia, Azerbaijan, Belgium, Belize, Canada, Colombia, Costa Rica, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finnland, France, Georgia, Ghana, Greece, Iceland, Ireland, India, Italy, Japan, Korea, Malta, Latvia, Lithuania, Luxembourg, Mexico, Moldova, Netherlands, New Zealand, Norway, Romania, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, UK and USA.
The list of affected partners consists of those countries listed above that are not part of the EEA. For them, it has become easier to obtain a CIT exemption but they still have to fulfil a number of requirements that EEA countries do not.
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