Fund Taxation Alert 2023-05

On June 8, 2023, the Court of Justice of the European Union (“CJEU”) rendered its judgement on case C-322/22, concerning the right to late interest due on refunds of unduly withheld taxes for funds based outside of the EU/EEA. This right was being denied due to a failure to amend Polish regulations following previous CJEU court cases.

The CJEU, in its judgment, referred to the fundamental principles of EU law - namely the principle of effectiveness in conjunction with the principle of sincere cooperation - which, according to the Court, must be interpreted as precluding a piece of national legislation that can provide for limitations and exclusions of late interest payments depending on the date of submission of an unduly withheld taxes claim.

Referring to its constant case-law, CJEU reiterated that late interest payments cover the entire period running from the date on which an investment fund paid the withholding taxes, to the date on which the aforementioned taxes are refunded to that investment fund. 

This decision provides an opportunity to foreign investment funds, where they can now seek compensation further to the breach of EU law by Poland. We expect this to be applicable both to future reclaims and those effectively closed following final decisions.

More generally, this decision constitutes another incentive for investment funds to file withholding tax reclaims as it reinforces the principle that all taxes levied in breach of EU law should be reimbursed, including the payment of late interest.

Late interest payments can range from 1% to 6% in the various EU Member States. It is worth noting that the portion of late interest linked to a reimbursement of withheld taxes can be substantial, especially if the time frame between the reimbursement and the levy of the withholding tax covers several years.

For further details on the CJEU decision, you can consult here the Tax Alert published by KPMG Poland.