Tax Alert: CJEU judgment (C-322/22) clears the way for interest recovery on unduly withheld taxes in Poland

The background of this case was the discrimination against funds from third countries that has been continuously taking place in Poland for many years as a result of failure to amend Polish regulations after the April 10, 2014 CJEU judgment in the case C-190/12 (which gave basis for third country funds to recover WHT in Poland). Since then the Polish legislator has not taken any actions to amend domestic rules which have been found in breach of EU law. Consequently, to this day the C-190/12 judgment provides the most relevant legal basis for foreign funds to seek reimbursement of taxes suffered in Poland.  Such refund process is usually very lengthy and requires significant costs to be borne on the part of foreign funds. Moreover, such funds have been effectively deprived in Poland of the right to receive interest award due on such overpayments - an issue that has been the subject matter of the CJEU proceedings which ended with the judgment of June 8, 2023.

In the judgment dated June 8, 2023, the CJEU found the Polish regulations applicable in the case at hand to be incompatible with the EU law. As part of its argumentation, the CJEU referred primarily to the fundamental principles of the EU - the principle of effectiveness in conjunction with the principle of loyal cooperation - which, in the CJEU's view, must be interpreted in such a way that they preclude a piece of national legislation (in this case, primarily Article 78 § 5 of the Polish Tax Ordinance) which provide for limitations and exclusions of interest depending on the date of submission of an overpayment claim. The CJEU also pointed to the Court's well-established jurisprudence, according to which any entity charged with a tax levied in violation of EU regulations has the right to obtain from the respective Member State not only a refund of the sum of money levied though not due, but also the payment of interest intended to compensate for the unavailability of that sum, which in the case at hand effectively did not happen.

In this respect the CJEU not only questioned the general domestic 30-days deadline (counted from the date of publication of the CJEU judgment constituting the basis for claiming the refund) for submission of the overpayment claim required in order to be entitled to the full interest award, but also the approach of Polish administrative courts. According to the latter the aforementioned rule should be interpreted and applied in other cases (which have been finalized after the relevant CJEU judgment publication date) with the effect of creating a separate deadline for submission ending 30-days from the day the tax has been withheld. The CJEU noted that in light of the national legislation and practice, in such a short period a taxpayer may not even be aware of the fact that the tax has in fact been withheld.   

As a result of the above, the CJEU has effectively opened the door for foreign funds to seek compensation due from Poland in connection with sums (taxes) which such funds have been deprived off in breach of EU law.  This new opportunity should apply both to future reclaims as well as those effectively closed (ended with final decisions / judgments).  In the latter case, the taxpayers will now have a possibility to reopen such closed cases within relatively short statutory deadlines. Potential  consequences of this judgment may be broader, affecting among other cases involving other types of entities (not necessarily third country funds) as well as VAT proceedings.