In recent years, disputes regarding withholding tax (WHT) on dividends have focused mainly on the status of beneficial owner, real business activity or the artificiality of holding structures. Currently, however, we are observing another direction of argumentation of the Polish tax authorities.

More and more often, the authorities are trying to make the possibility of applying the dividend exemption dependent on whether the dividend is actually taxed on the part of the foreign parent company. In practice, this means an attempt to introduce an additional condition of “effective taxation” at the side of parent company.

A new line of argument for the tax authorities

The dividend exemption provided for in the Polish CIT Act implements the Parent-Subsidiary Directive and allows dividends to be paid without Polish withholding tax if certain conditions are met. One of the conditions is as follows (Article 22(4)(4) of the CIT Act):

A company receiving income from dividends does not benefit from an income tax exemption on all of its income, regardless of the source of its income.

Tax authorities are increasingly arguing that this condition is not met if the foreign parent company does not pay tax on the dividend received – which is the most common case. This argument is often raised by the tax authorities alongside allegations concerning actual business activity, beneficial owner status or the artificiality of the structure.

Tax authorities argue: if the dividend is not taxed in the country of the parent company, it should also not benefit from the exemption from WHT in Poland. The directive should not lead to double non-taxation of dividends. Such a position is obviously wrong.

Dutch cases

A good example of this are the cases considered by administrative courts in relation to Dutch holding companies. Polish subsidiaries have applied for an opinion on the application of preferences in connection with the planned dividend payments to their Dutch shareholders. The authority refused to issue an opinion, considering that Dutch companies benefit from the participation exemption and thus do not meet the condition of Article 22(4)(4) of the CIT Act. In the opinion of the authority and subsequently also the court of first instance (four judgments of May 2023), the lack of taxation of dividends on the part of the Dutch company meant that it was not possible to apply the WHT exemption in Poland.

However, the situation changed after the judgments of the Supreme Administrative Court of 12 August 2026. The Supreme Administrative Court repealed all four judgments of the Provincial Administrative Court and all refusals to issue an opinion on the application of preferences. It follows from the oral recitals of the judgements that Article 22(4)(4) of the CIT Act does not establish a condition for the actual taxation of a dividend on the part of its recipient. The exemption of a certain type of income is not the same as the exemption of a company from taxation on all its income.

Polish limited partnership as a German establishment

An even more interesting example comes from the practice concerning German capital groups. The Polish company in question operated in the form of a limited partnership. The authority refused to issue an opinion on the application of the dividend exemption, arguing that the Polish limited partnership is treated under German tax law as an permanent establishment of a German company. As a consequence, the income generated by this company was exempt from taxation in Germany on the basis of the double taxation treaty. The authority concluded that since this income is excluded from the German tax base, the conditions for dividend WHT exemption are not met.

Unfortunately, similar arguments have also appeared in the case law of the Supreme Administrative Court. In its judgment of 21 January 2026 (II FSK 1030/25) concerning a Polish limited partnership paying dividends to Germany, the Supreme Administrative Court indicated that “the main argument for assuming that the Taxpayer (a German company) is not effectively taxed is the fact that a Polish limited partnership is treated as an establishment (…), and the income (…) is subject to exclusion from the German tax assessment base”. In the end, the court accepted the authority’s position, stating that “it was correctly assumed that the Applicant did not demonstrate that the Taxpayer is subject to effective taxation”.

The Parent-Subsidiary Directive does not require dividends to be taxed twice

The argumentation of the authorities seems difficult to reconcile with the basic objective of the Parent-Subsidiary Directive.

One of the main assumptions of the Directive is the elimination of economic double taxation of dividends. This objective is achieved through two mutually complementary mechanisms:

• exemption from WHT in the subsidiary’s country,
• exemption of dividends or granting of an appropriate tax credit in the country of the parent company.

Meanwhile, the approach under consideration leads to a situation in which the application of the latter mechanism becomes an argument against the application of the former. In other words, the exemption provided for by the Directive would exclude another exemption provided for by the same Directive.

Non-taxation does not mean automatically abuse

It should be remembered that if the authority considers that a given structure is artificial, has no economic justification or has been created mainly for tax benefits, it may resort to appropriate anti-abusive regulations (Article 22c of the CIT Act). However, such an analysis requires an examination of specific circumstances, and not based solely on the fact that certain income is exempt from taxation in the country of residence of the dividend recipient.

Conclusion for international groups

International payments subject to WHT (dividends, licenses, interest) currently require special caution. Due to the restrictive approach of the Polish tax authorities and some courts, groups should verify in good time whether the recipient conducts real business, the structure has an economic justification and an appropriate economic substance. In the case of significant payments, it is also worth obtaining an official opinion on the application of preferences or conducting a WHT risk audit.

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