Following months of intensive discussions with business representatives, on 18 November 2024 the Minister of Finance published a general ruling concerning the conditions for applying the dividend exemption specified in Article 22(4)(2) and (4) of the Corporate Income Tax (CIT) Act in the context of withholding tax (WHT).

Background

Polish tax authorities and courts have issued numerous rulings denying the WHT exemption for dividends paid abroad because, broadly, the dividend was exempt from tax in the hands of the recipient (even if all other exemption conditions were met). This approach resulted from a broad interpretation of one of the exemption conditions (Article 22(4)(4) of the CIT Act) — i.e., that the dividend recipient could not benefit from "an exemption from income tax on all of its income, regardless of the source of its income."

General ruling

The general ruling explicitly confirms, among other things, that:

1. The recipient of dividends must be a tax resident in a European Union (EU) or European Economic Area (EEA) state and not be considered a tax resident of a non-EU or non-EEA state.
2. The condition that the entity may not benefit from an income tax exemption should align with the Parent-Subsidiary Directive (PSD) and a Court of Justice of the EU judgment of 8 March 2017 (C-448/15).
3. This condition is not violated if the recipient benefits from a specific tax exemption for the received dividend based on the PSD.
4. All circumstances of the dividend payment should be assessed under Article 22c of the CIT Act (which implemented the PSD General Anti-Avoidance Rule).

Implications

The ruling aims to eliminate discrepancies in understanding the dividend exemption conditions, particularly regarding the "effective taxation of dividends." Although the ruling is not a source of law, it serves as an interpretative guideline.

Multinational groups receiving or planning to receive dividends from Poland should verify whether they may benefit from the protective power of the general ruling, which could make it easier to obtain WHT clearance opinions and dividend distributions and/or refunds of WHT paid in the past.