The case C-18/23 pending before the CJEU regarding the Polish corporate income tax (CIT) exemption for foreign EU and EEA investment funds could have significant implications, especially for self-managed funds like Luxembourgian SICAVs. Advocate General Juliane Kokott's recent opinion in Case C-18/23, delivered on 11 July 2024, has sparked concern due to her support for Poland's differential tax treatment of resident externally managed and non-resident internally managed (self-managed) investment funds.
AG Kokott concluded that Poland’s approach, which exempts only externally managed investment funds from CIT, is justified by the objective of effective investor protection. She argued that this measure is both suitable and necessary, even if it results in an impairment of the free movement of capital. According to AG Kokott, such a restriction is permissible under EU law, provided that both domestic and foreign funds are treated equally and that there is no indirect discrimination since Polish law does not allow the establishment of internally managed investment funds.
If the CJEU follows AG Kokott's opinion, such decision would have significant ramifications, affirming that Poland’s different fiscal treatment of non-resident self-managed funds is compatible with EU law and does not constitute discrimination.
The issue at hand arises from the restrictive interpretation of Polish tax law by Polish tax authorities and lower-level administrative courts, which have consistently denied CIT exemptions to self-managed foreign investment funds. They argue that these funds are not comparable to Polish investment funds because the internal management of the fund is not - as such - authorized by the respective financial supervision authority.
However, this view has been challenged by a series of favourable rulings from the Polish Supreme Administrative Court (SAC), which has held that all funds operating under the UCITS Directive should be considered comparable to their Polish counterparts (cases such as II FSK 699/19, II FSK 2965/18, II FSK 2663/18, and II FSK 1866/18). The SAC emphasized that requiring an external management company as a criterion for comparability contradicts EU legislation and undermines the principle of free movement of capital.
Despite these SAC rulings, the Regional Administrative Court in Gliwice referred a case involving a Luxembourg-based specialized investment fund (SICAV-SIF) to the Court of Justice of the European Union (CJEU) for a preliminary ruling. The Polish court sought clarification on whether the national law governing the CIT exemption for self-managed foreign funds is compatible with the UCITS Directive (Directive 2009/65/EC), particularly Article 29(1), and other relevant provisions of EU law. The case was described in more detail in the Polish section of the WTS Global Financial Services Infoletter #28, dated 15 March 2023.
The case raises broader questions about the interplay between national regulatory law and national tax law across different jurisdictions.
While there are differences in how investment funds can be structured under different national regulatory laws, it remains questionable whether these differences should be disregarded for tax equality purposes. The stringent and formalistic conditions for granting tax exemptions to foreign funds under Polish tax law, based on specific regulatory features of Polish investment funds, could lead to inconsistencies and misunderstandings in the application of national tax law. Conditions derived from regulatory law must not be assessed without considering their functional context and without adequate understanding of the relevant regulatory framework.
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