Unfavourable interpretation of WHT exemption provisions for dividends
An unfavourable position for taxpayers has recently been presented by the Provincial Administrative Court in Lublin. The issue is precisely the dividend exemption from withholding tax, which is provided for in the CIT Act for dividend payments to EU and EEA residents.
– One of the conditions for the application of the CIT exemption is the requirement that the recipient of the dividend does not benefit from an exemption from income tax on its entire income, regardless of the source of that income. The tax authorities and the WSA in Lublin interpret this requirement to mean that the recipient of a dividend cannot enjoy an exemption from taxation in its state of residence – either subjective or objective. In other words – the dividend must be effectively taxed in the recipient’s state of residence – explains Adrian Celiński, project manager at Thedy & Partners.
At the same time, he points out: “The interpretation is broadening and does not follow from a literal and pro-EU interpretation of this provision, according to which this condition applies only to the absence of an exemption of a subjective nature on the part of the recipient of the dividend.”
The exclusion of the applicability of the withholding tax exemption may cause significant restrictions to the free movement of capital, as many EU or EEA countries (including Poland) have this tax exemption for dividends received. In the near future, we expect a ruling of the Supreme Administrative Court in this respect confirming (or negating) the correctness of the approach of the WSA in Lublin.