Renata Kabas-Komorniczak

Tax adviser (Poland)
Branch manager
Phone: +48 22 696 28 00

The right to the exemption from withholding tax on dividend can be transferred by virtue of a general succession, says the judgement issued on 14 February 2014 by the Supreme Administrative Court [SAC]  (file no. II FSK 536/12). 

A Polish company which was a CIT taxable person (acquiring company) planned to acquire a Dutch company (target company) which had held 100% of shares in another Polish company (daughter company) for an uninterrupted period of over two years. The Dutch company met the conditions stipulated in Article 22(4) et. seq. of the  CIT  Act regarding the exemption from withholding tax on the dividend received from the daughter company, including the requirement of holding shares in such a company for an uninterrupted period of two years.

The acquiring company (grandparent company) acquires by virtue of law the right to the exemption from withholding tax on dividends received.

It remains unclear whether after the merger the acquiring company will be entitled to take into account the period in which the Dutch company held a qualified interest in its subsidiary. The company which applied for an advance tax ruling argued that after the transformation it may enjoy the CIT exemption to which its legal predecessor was entitled. 

The Director of Tax Chamber did not agree with this standpoint. By invoking Article 93(2) of the (Polish) Tax Act, the Director stated that the tax succession referred only to those rights or obligations which existed at the time of the acquisition. Since the dividend was not paid in this case, no right to the exemption from the tax on that dividend could be acquired. In the opinion of the Tax Chamber the period of holding shares is a condition for the succession, and not a right that is transferred by virtue of the succession. 

The case was submitted to the Provincial Administrative Court [PAC] in Warsaw, which dismissed the above opinion. In the justification of its judgement, the court stated that the fact that the Dutch target company had not received the dividend from its Polish daughter company was completely irrelevant to the case. This is because the succession regulated in Article 93(2)(1) in conj. with Article 93(1) of the Tax Act comprises all rights and obligations provided for in tax regulations, and not only those which have been exercised. Therefore, the complainant company is allowed to enjoy the right to the exemption which the target company had. 

The SAC upheld the stance of the PAC in its entirety. It stated that the general succession means assuming the legal rights and obligations of the target company, which results in the right to enjoy tax exemption.  

This was not the first case considered by the SAC in relation to the succession of the right to the exemption from tax on dividends. In a similar case (judgement of the PAC of 26 March 2013, file no. II FSK 1675/11), the court pointed out that "a legal successor replaces its legal predecessor in all legal relationships to which the latter was a party in such a manner as if the successor was a party to those relationships from the very beginning". Also the judgement of the SAC of 10 September 2013 (file no. II FSK 2503/11), and those of the PAC in Warsaw of 29 June 2011 (III Sa/Wa 2918/10) and of 16 March 2011 (III SA/Wa 1852/10) follow this case law of administrative courts. 

We will be glad to inform you in more detail on the above subject and provide you with advice on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.