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Emerging Markets: non-EU investment funds eligible for withholding tax refund

By Cezary Przygodzki and Rafal Mikulski

In Emerging Markets Series of DFA Investment Trust Company (C -190/12), the European Court of Justice (ECJ) confirmed that investment funds based outside the European Union (EU) should benefit from the EU free movement of capital rule regarding investments in Europe. Thus, if an EU domestic investment fund can benefit from local income tax exemptions, then non-EU investment funds (e.g. US or Canadian) investing in the EU should also be entitled to apply for such exemptions.

In Emerging Markets, a US investment fund applied for a refund of withholding tax paid on dividends derived from Polish companies. The ECJ stated that US investment funds are entitled to put themselves in a position similar to that of local funds. This means that under certain conditions, non-EU investors may benefit from local tax preferences/exemptions.

In light of the relevant Polish regulations (which provide for income tax exemptions for domestic investment funds and funds based in the EU/EEA) and the tax information exchange agreement between Poland and the US, the dividends paid to a US investment fund should also be exempt from withholding tax in Poland…

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