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Compatibility of Polish Rules with EU Law

18 Nov 2011

On 6 October 2011, the hearing before the Court of Justice of the European Union in the case of a Polish company, Pak-Holdco took place. The proceedings were initiated by a preliminary question referred by the Polish Supreme Administrative Court on the grounds of the Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on raising of capital.

The dispute relates to the imposition of capital duty on an increase in the share capital resulting from an in-kind contribution in the form of shares in another company. In particular, the subject of the dispute revolves around the interpretation of the provision (which entered in force on 1 January 1986) of the Directive exempting from capital duty transactions which were, as at 1 July 1984, exempted or taxed at a rate of 0,50 % or less.

At the outset, it must be also noted, as a result of subsequent amendments thereto, the Directive intended to introduce into internal legislation of the EU members a full exemption from capital duty of an increase capital resulting from some restructuring operations. However, Poland failed to fulfill its obligations in this area.

This recent case before the Court of Justice is likely to be of interest to many companies which paid capital duty between 1 May 2004 and 1 January 2009 on restructuring processes and thereafter claimed for refunds.

Taxand Poland examines the issue of applications for refunds on capital duty paid between 1 May 2004 and 1 January 2009 with regard to the increase in the share capital resulting from restructuring processes.

At its enquiry, the Polish Court raised the question of whether interpretation of the provision of the Directive stipulating the above exemption from capital duty should take into consideration the state of the UE law as at 1 January 1986. In other words, the question is whether the date 1 July 1984 should refer to the UE provisions binding as at 1 January 1986 (even though Poland was not a member of the UE at that time) or whether the date 1 July 1984 should rather relate to the wording of Polish internal regulations binding at that time.

The verdict of the Court of Justice should end the dispute on whether Polish provisions, binding in the period between 1 May 2004 and 1 January 2009, which in all cases subjected the increase in the share capital to the capital duty were compatible with the Directive or whether the increase in the share capital resulting from some restructuring processes should have been subjected to the discussed exemption, as foreseen in the Directive. According to the referring Court there are strong arguments supporting both standpoints.

The Court notes that one school of thought lays emphasis to consider the objective of the Directive which intended to abolish capital duty as a factor impeding the movement of capital in the common market. As the Court indicates, they also bring up the need to apply EU law uniformly - otherwise the discussed exemption would be applied differently, depending on whether a Member State accessed the EU before or after 1 January 1986. Ruling in the case of C-397/07 European Commission vs. Spain lends support to this view. In this case, although Spain accessed the EU at a later stage of the European integration, it was obliged to apply "historical" interpretation of the EU law.

On the other hand, as the Court notices, the contrary view finds support in the literal wording of the relevant provision of the Directive - as at 1 January 1986 Poland was not a member of the EU therefore the UE law being in force at that time and repealed before the accession of Poland cannot be binding on Poland. Moreover, according to this approach, since Polish internal regulations levied a duty at a rate higher than 0.50% as at 1 July 1984 for an increase in share capital, such operations could not qualify for the discussed exemption. It is also claimed that the judgment issued in the case C-366/05 Optimus Telecomunica??es confirms this view.


Taxand's Take

The question referred to the Court of Justice have raised controversies and judgments issued in this context by the Polish administrative courts have been contradictory. What is important, as in the case involving Pak-Holdco, the disputed amounts of the capital duty are considerable.

Adoption by the Court of Justice of the first view ("historical" interpretation of the Directive 69/335/EEC) would result in exempting many restructuring operations from capital duty that were completed between 1 May 2004 and 1 January 2009. As a result of such a position, taxpayers' chances of receiving a refund of the unduly paid capital duty will increase. If the applications for overpayment are submitted before the publication of the Court of Justice's judgment (provided that it will be favourable for the taxpayers) or within 30 days following it, the overpayment will be refunded along with higher interest (for the period between the date on which the capital duty was unduly paid and the date of its refund).

The Advocate General did not issue its opinion in the discussed dispute which could suggest that the Court of Justice will rule on the basis of the so-called acte ?clair? doctrine, namely, analogically to its past verdicts issued in similar cases (for instance, the necessity of applying "historical" interpretation was analysed by the Court of Justice in the case C-397/07 European Commission vs. Spain). The judgment in the case C-372/10 Pak-Holdco is expected within 3-8 months.

Your Taxand contact for further queries is:
Andrzej Puncewicz
T. + 48 22 324 59 49

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