On February 27 2025, the Court of Justice of the European Union (CJEU) delivered a landmark judgment in Case C-18/23, declaring that the Polish requirement for external management as a condition for tax exemption is in breach of EU law. This judgment represents a significant development for foreign investment funds operating in Poland and marks a pivotal shift in the Polish tax environment.
Background
Prior to the introduction of Article 6(1)(10a) of the Polish Corporate Income Tax Act (the CIT Act) (before 2011), Polish investment funds were exempt from CIT, while foreign funds – especially according to the tax authorities – could not benefit from such exemption. This led to the European Commission initiating infringement proceedings against Poland, issuing a formal notice on March 23 2007, and subsequently delivering a reasoned opinion on May 15 2009, regarding the discriminatory taxation of foreign investment funds.
To address these concerns, Poland introduced Article 6(1)(10a) of the CIT Act on January 1 2011, exempting certain collective investment institutions based in other EU or EEA member states. Importantly, the original version of this provision did not include the now-controversial requirement concerning the fund’s management method.
However, less than a year later, on December 4 2011, the legislation was amended to include point (f), which limited the tax exemption to externally managed funds. Furthermore, based on an impermissible analogy from the Polish Investment Funds Act, tax authorities interpreted this provision so that the exemption only applied to funds where the management company’s authority was derived from statutory provisions rather than contractual arrangements – effectively excluding most EU-based funds from the exemption.
The CJEU judgment and its implications
The CJEU’s judgment has fundamentally altered this landscape by determining that the external management requirement is incompatible with EU law, specifically with the principle of free movement of capital enshrined in Article 63 of the Treaty on the Functioning of the European Union.
The CJEU’s reasoning hinged on the fact that the Polish legislation effectively discriminated foreign investment funds. Since all Polish investment funds were exempted unconditionally, there was no justified reason to limit the tax exemption of foreign investment funds to those that are self-managed. The CJEU found that this could discourage foreign funds from investing in Poland, thus constituting a restriction on the free movement of capital.
It is worth noting that the CJEU did not share the opinion of Advocate General Juliane Kokott from July 11 2024, who had supported the position of the Polish tax authorities, arguing that the Polish regulations did not constitute indirect discrimination.
As a result of this judgment, the contested provision should be removed from the Polish legal framework by the legislature or, until that occurs, disregarded by tax authorities in their decisions.
Practical implications for foreign investment funds
This CJEU judgment has significant practical implications for the tax system and investment market in Poland, and creates the following opportunities for foreign investment funds:
Self-managed funds that were previously denied tax refunds can now reopen their tax proceedings;
Funds that have not yet filed for tax refunds can claim their rights based on the CJEU judgment;
Externally managed funds that were denied tax exemptions due to their management method (e.g., when the management company operated based on a contract rather than statutory provisions) can also reopen their proceedings; and
Tax refunds with interest may be substantial – in some cases, the interest may exceed 50% of the collected tax, representing a significant gain for the funds.
To avoid unnecessary complications, applications for tax refunds should be submitted within 30 days from the date of publication of the judgment in the Official Journal of the European Union.
Long-term effects on the Polish investment landscape
The CJEU judgment creates a more level playing field for international investment funds in Poland. Foreign self-managed funds – previously excluded from tax benefits – will now find the Polish market considerably more accessible.
This development may lead to several positive outcomes:
Increased capital inflows as more diverse fund structures enter the market;
Enhanced competitiveness of Poland as an investment destination; and
Greater alignment between Polish tax regulations and EU principles.
This judgment effectively resolves long-standing disputes in the Polish tax landscape, forcing authorities to adopt a more inclusive approach towards foreign investment vehicles. For funds that have historically faced challenges with Polish tax exemptions, this represents both an opportunity for tax refunds and a gateway to new investment possibilities in the Polish market.
Hopefully, this judgment will be an incentive for the tax authorities to eliminate other means of discrimination of foreign investment funds (e.g., expressly exempt investment funds from third countries, which would constitute implementation of another CJEU judgment, C-190/12, of April 10 2014, Emerging Markets Series).
