Thus, opening a possibility for a CIT exemption on income derived from the investment in Poland. Although uncertainties remain whether specificity of organizational and legal forms of Polish funds differs substantially from the forms of FIF operating in other EU Member States andEuropean Economic Area (hereinafter: EEA).

Polish CIT regulations:

According to the amendments introduced to the Polish CIT Act (which entered into the force on 1th January 2011), tax exemption is extended onto the FIF having their seat in territory of any EU or EEA Member Country other than Poland. However, the following conditions should be met jointly in order to avoid Polish taxation of such income:

• The entire income of FIF is covered with CIT taxation in a country of its seat or head office, regardless of where the income has been derived from.
• The subject of business activity of the Fund is limited to collective investment of funds gathered by means of public or un-public offering in securities, money market and other property rights.
• The FIF carries on its activity on the basis of authorization granted by the competent authorities of the Member State, where the FIF has its registered seat or head office.
• The FIF is under the supervision of competent authorities of the Member State, where the FIF has its registered seat or head office.
• The FIF’s assets must be entrusted to a depositary for safe-keeping.

Moreover, in order for any FIF to be subject to the said exemption a double tax treaty convention or other international agreement ratified by Poland has to give the relevant Polish tax authority a legal basis for receiving tax information from the tax authority of the country, where the FIF has its registered seat or head office. According to Article 26 of Convention between the Republic of Poland and the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, there is an appropriate clause providing the Polish tax authority has a legal basis for receiving tax information from the tax authority of the United Kingdom.

Additionally, with respect to distribution of passive incomes (such as dividends, interests) to FIF, it is clearly set forth in the Polish CIT Act that tax remitters shall be entitled to apply the tax exemption on dividends/interest paid to FIF provided that tax remitter possesses the following documents:

• Certificate of residence issued by the relevant tax authority confirming the place of tax residence of the FIF, and
• Written statement issued by FIF indicating that FIF is the real owner of the payments made by the tax remitter (so called “beneficial owner”) and that FIF meets all requirements provided for in the provisions regulating CIT exemption.

What is more,after introduction of mentioned regulation to Polish CIT Act,the European Commission formally requested Poland to amend its tax legislation which discriminates against investment funds and pension funds from other EU countries and countries of the (EEA) dated on 16 July 2011. Despite corrective measures taken by Poland in November 2010 in response to a previous request, the Commission considers that Poland is still not fulfilling its obligations under Articles 56 and 63 (freedom to provide services and free movement of capital) of the Treaty on the Functioning of the EU and Articles 36 and 40 of the European Economic Area Agreement. This is due to the fact that funds established outside Poland can only benefit from this exemption under certain conditions which are not applied to Polish funds. As a consequence, this practice constitutes, in EC’s view, a breach of EU law.

Practical implications

Polish legal system grants legal personality to Polish Investment Funds. However, specificity of organizational and legal forms of Polish Funds differs substantially from the forms of FIF operating in other EU Member States and EEA. Hence, there are some uncertainties if such FIFs remain under mentioned exemption. Some EU Member States are acquainted with types of Collective Investment Funds which have no legal personality and whose underlying taxation rule is transparency principle (similar to trustee relationship), where investors are treated as if they were investing directly in the underlying assets. Since the Polish regulations do not provide for definitions of economical ownership or trustee relationship, in practice it may mean that the Polish tax authorities will mainly follow the legal definition of ownership, and, as a consequence, rule out some of FIF from CIT exemption benefits. Thus, uncertainties remain whether specificity of organizational and legal forms of FIF may benefit from CIT exemption, which may be relatively easily dispelled by individual analysis supported by individual tax law interpretation issued by Polish Ministry of Finance.

Additionally, it should be expected that Polish authorities will liberalize the mentioned exemption in the nearest future, in particular due toEC’s formal request to do so. Argumentation presented by the EC is mainly based on the fact that tax exemption granted to foreign funds as of 1 January 2011 is of a conditional character, whereas the exemption for domestic funds is granted unconditionally. As a result, such a condition is deemed not in line with EU law, as some investment funds from other EU/EEA States will not be granted the benefit of the exemption in Poland, which wouldotherwise be granted to all similar Polish fundswithout any additional requirements.In our view initiation of the discussed anti-discriminatoryprocedure creates very soundargument supporting the thesis that all theforeign investment funds, regardless of thelegal structure they operate in, should begranted CIT exemption in Poland.

Although the commented exemption has only been introduced in the amendments to CIT Act as of 1st January 2011, some Polish Administrative Courts ruled that under previously binding (by the end of December 2010) regulations it is also possible for some forms of FIFs to become subject to CIT exemption. Thus, potential of obtaining CIT refund for past period also exists.

In case you would be interested in being provided with more detailed information on the issue, in particularwhether the analyzed FIF structure benefit from mentioned exemption, please do not hesitate to contact tax advisers of TPA Horwath.