On 19 December 2023, the Supreme Administrative Court (“NSA”) handed down its judgment in case number II FSK 2108/20 concerning interest on overpaid WHT for foreign investment funds. This new decision is interesting case law in the context of CJEU's verdict of 8 June 2023 in case C-322/22.
As a reminder, CJEU's ruling was that a national provision is incompatible with EU law if, when a request for a refund of overpaid tax is submitted more than 30 days after publication of the relevant judgment of CJEU, the provision limits the running of the interest on the overpayment due to the taxable person to the 30th day after the publication, or even excludes interest entirely in a situation where that overpayment was incurred by the taxable person after that 30th day.
NSA's recent decision upholds the lower court's judgment that where tax was held to be overpaid due to the incompatibility of national law with Union law, interest on such overpayment accrues from when the tax was improperly withheld until the 30th day after publication of CJEU's judgment of 10 April 2014 in case C-190/12 Emerging Markets Series of DFA Investment Trust Company. Importantly, the case before NSA involved a refund request relating to overpaid tax for December 2017.
NSA is yet to publish a statement of reasons for its decision, so we will inform you of the details of the court's reasoning at a later point in time. However, we note that the lower court's judgment that was upheld by NSA is inconsistent with CJEU's judgment of 8 June 2023 in case C-322/22 and is inherently contradictory in its ratio because:
- on the one hand, the statement of facts suggests the judgment applies to interest on overpaid tax that was withheld on behalf of a Luxembourgian fund for years 2012 to 2016, which was after introduction of the national law offering exemption for foreign investment funds from EEA or EU (Article 6(1)(10a) of the CIT Act); and
- on the other hand, according to the statement of reasons for the judgment, any incompatibility between national law and Union law may be seen only until 1 January 2011, with no incompatibility found for years 2012 to 2016.
Home loans in Swiss currency - Banks hit by top tax court decision
In the aftermath of a series of CJEU's decisions, Poland is now seeing a wave of cancellations of home loans that are linked to or denominated in CHF. Where a bank that offered such a Swiss franc mortgage loses its case in court and has the loan cancelled, it must refund to the customer both the principal and interest payments received from the borrower and the loan commissions charged by the bank (together, “cancellation costs”).
This development gave rise to the question whether the banks may treat the cancellation costs as regularly deductible for tax purposes. The banks argued that such cancellation costs are deductible by reference to the current period.
In contrast, the tax authorities insisted that:
- banks are only allowed to make retroactive income adjustments by "zeroing" income for the periods in which it was declared; but
- cancellation costs are not deductible in current periods.
The tax authorities argue in essence that, under civil law, a declaration of invalidity of a contract operates retroactively (ex tunc), which means an invalid contract is treated as never having had any legal effect since its very inception. Consequently, any tax impact of a Swiss franc home loan cancellation should be accounted for through taxable income, not tax costs.
This argument is extremely unfavourable for the banks due to the issue of limitation periods. In Poland, the liability to pay a tax expires 5 years after the end of the calendar year in which the tax fell due. This means that tax liabilities for 2017 expired as of the end of 2023, and those for 2018 will expire at the end of 2024. The problem is that banks may not make their downward income adjustments with respect to any years for which their tax liabilities have expired.
The dispute came before judges and initially things were good for banks as they won before lower tax courts. But those judgments were appealed by tax authorities to the top tax court NSA, which dealt with the appeals in early December 2023. NSA issued a number of judgments on 4 and 6 December 2023 which reversed the lower courts' decisions that were favourable for the banks (see NSA case numbers II FSK 334/22, II FSK 1264/23, II FSK 1442/23, II FSK 1443/23 and II FSK 1658/23).
According to NSA, tax-deductible costs include only expenses incurred with a view to, and an objective possibility of, generating income or preserving or securing a source of income. This is not the case where expenses represent reciprocal payments in the settlement of an invalidated contract.
As a result, the only available relief in the event of Swiss franc mortgage cancellation is to adjust taxable income.
Given the number of NSA's December decisions, the way they interpret the contested tax regulations against the banks should be considered to form prevailing, or even settled, case law.
WHT on insurance services - Tax authorities change their approach
Since 2018, tax authorities have been claiming that insurance services in Poland are subject to withholding tax at the rate of 20% as services similar in nature to guarantees. Any preferential treatment was available subject to a number of substantive and formal conditions.
That claim was heavily criticised by the consulting industry and contested by tax courts which reversed tax rulings containing such interpretation. Yet, tax authorities consistently stuck to their controversial approach for many years. But changes began to appear in late 2023. The first sign of a departure from the taxpayer-unfriendly interpretation came on 17 November 2023 with private tax ruling ref. 0111-KDIB1-2.4010.473.2023.2.END. The ruling authority agreed with the applicant that insurance services purchased from non-residents are not among services subject to WHT so that no tax should be withheld from payments for such services that are made to foreign residents. Consequently, those making such payments do not have obligations as WHT agents.
If you wish to discuss these topics, please contact: Doradztwo Podatkowe WTS&SAJA Sp. z o.o.
