Exemption of cross-border dividends from withholding tax in light of the latest signals from the CJEU

The number of tax audits and disputes in Poland relating to withholding tax [WHT] has increased significantly, and tax on dividends paid to foreign entities has become one of the main areas of disagreement between the tax authorities and the business community. The authorities often take a restrictive approach.

The payment of dividends to a shareholder, as a general rule, obliges the payer to withhold 19% WHT. The CIT Act, in connection with the implementation of Council Directive 2011/96/EU of 30 November 2011 [PS Directive], provides, however, for the possibility of applying a dividend tax exemption, provided that certain conditions are met:

1. the company paying the dividend has its registered office or place of management in Poland,
2. the recipient of the dividend is a company subject to taxation on its total income in Poland, another EU Member State or the EEA,
3. the company receiving the dividend holds directly at least 10% of the shares in the paying company for a period of at least two years,
4. the company receiving the dividend does not benefit from an exemption from taxation on its total income, regardless of the source of such income.

When verifying the conditions for applying a preferential rate or exemption from dividend tax arising from specific provisions or double taxation agreements, the payer is obliged to exercise due diligence.

The CIT Act does not specify precisely what is meant by exercising due diligence, merely indicating the circumstances to be taken into account when assessing it. It refers to the nature and scale of the payer’s business and related party relationships within the meaning of transfer pricing rules, which means that the standard of due diligence is variable and should be assessed on a case-by-case basis, taking into account the specific circumstances.

Does the recipient of a dividend have to be its beneficial owner?

An analysis of case law up to 2026 leads to the conclusion that the dispute on this issue remains unresolved. There are at least two views on this matter:

1. according to the first, the payer is under no obligation to verify whether the recipient of the dividend is its beneficial owner. This position was set out, inter alia, by the Supreme Administrative Court in its judgment of 8 February 2023, ref. no. II FSK 1277/22, in which it was stated that the regulations do not contain a requirement that the recipient of the dividend be its beneficial owner,
2. according to the second view, the payer is obliged to verify whether the recipient of the dividend has the status of its beneficial owner. This approach was reflected, inter alia, in the judgment of the Supreme Administrative Court of 31 January 2023, ref. no. II FSK 1588/20, in which it was stated that the payer is obliged to verify the status of the dividend recipient, including determining whether they are the beneficial owner, in order to apply the exemption.

It is significant that the Supreme Administrative Court presented a different position within the space of a few days.

What must the payer check when paying dividends abroad?

The scope of the payer’s verification obligations depends on whether the taxpayer (the foreign entity) and the payer (the Polish entity) are related entities.

In the case of payments to related parties, the tax authorities expect high verification standards to be met, taking into account an examination of the factual, legal and economic circumstances. According to the explanatory notes on withholding tax dated 3 July 2025, it is not sufficient to obtain a declaration and certificates from the taxpayer. A comprehensive verification of the information and documents provided by the taxpayer, as well as those publicly available, is necessary, carried out to an appropriate standard, in order to confirm that there are no circumstances precluding the application of an exemption or tax preference.

In the case of payments to unrelated entities, it is permissible to establish the facts necessary to determine whether the beneficial ownership condition has been met, based on an examination of a specific range of circumstances, i.e. on the basis of the certificate of residence obtained from the taxpayer and their declaration of compliance with this condition. However, this does not mean that the payer is not obliged to exercise due diligence when assessing the documents obtained from a formal perspective, in particular by verifying the period for which they were issued and their form.

Prohibition on abuse of the dividend exemption

The exemption of dividends from WHT is subject to restrictions under the so-called ‘minor anti-abuse clause’ (Section 22c of the CIT Act). Under this clause, the dividend exemption does not apply if:

1. taking advantage of the exemption specified in these provisions would, in the given circumstances, be contrary to the object or purpose of these provisions;
2. availing of the exemption was the main or one of the main purposes of carrying out a transaction or other act, or a series of transactions or other acts, and the manner of acting was artificial.

The ‘minor clause’ is used as an instrument limiting the scope of the dividend exemption. In practice, it is noted that circumstances such as: ‘artificiality of the legal structure’; ‘excessive complexity of the transaction’; “lack of economic substance in the transaction” justify the application of the clause, and consequently the lack of entitlement to the dividend exemption (for example: the judgment of the Provincial Administrative Court in Poznań of 9 July 2021, ref. no. I SA/Po 230/21, together with the subsequent judgment of the Supreme Administrative Court of 13 June 2024, ref. no. II FSK 1209/21). This clause is also sometimes used as an argument in favour of the need to verify the beneficial owner when paying dividends in the context of the dividend exemption.

In summary, the practice of the tax authorities regarding the application of the dividend exemption centres on:

1. verifying whether the recipient is the beneficial owner of the dividend;
2. the issue of due diligence;
3. the application of the clause in Article 22c of the CIT Act.

Our experience suggests that these activities have intensified in recent months. We hope that, in light of signals from the Court of Justice of the European Union [CJEU], this situation will change.

Opinion of the Advocate General of the CJEU in Case C‑203/25

On 21 May 2026, the Advocate General of the CJEU, Juliane Kokott, delivered an Opinion in Case C-203/25 concerning the taxation of dividends under WHT and the grounds for abuse within the meaning of Article 1(2) and (3) of the PS Directive [hereinafter: the AG’s Opinion], which corresponds to the aforementioned Article 22c of the CIT Act. The Advocate General’s Opinion does not, of course, decide the case on its merits; in practice, however, the opinions of Advocates General often form the basis for the Court’s subsequent ruling, which in many cases shares the position set out therein.

The Opinion of the Advocate General attaches particular importance to the objectives of the Parent-Subsidiary Directive, which is intended to support cross-border economic activity by facilitating the formation of groups of companies at EU level, in particular by removing existing obstacles to cross-border cooperation between companies compared to domestic cooperation. The Opinion of the Advocate General noted, among other things, that the Parent-Subsidiary Directive aims to ensure the tax neutrality of profit distributions by a subsidiary established in one Member State to its parent company established in another Member State.

At the same time, it was emphasised that the tax neutrality of distributions within a group of companies means that, as a rule, taxation occurs only at the stage of the ‘final’ distribution made by the parent company to its shareholder, in accordance with the rules applicable in the relevant country.

Against this background, the Advocate General also set out conclusions regarding the conditions for abuse of the PS Directive. The Advocate General’s Opinion indicated that abuse occurs where an entity that would not otherwise be entitled to benefit from the preferential treatment provided for in the PS Directive obtains such treatment as a result of an artificial arrangement (which may be a manifestation of aggressive tax optimisation or tax planning). It is necessary, however, for there to be a causal link between the structure employed and the tax advantage obtained. In other words, the tax authority should demonstrate that a specific structure was put in place with the aim of obtaining a tax advantage.

It should be noted, however, that according to the AG Opinion, abuse may exceptionally also occur in a situation where the parent company, which is the beneficial owner of the dividend, passes it on to the ultimate beneficiary. At the same time, it was emphasised that financial flows alone (e.g. within a group of companies), even if they occur in similar amounts or within a short period of time, cannot constitute an independent basis for considering a given structure to be artificial. Thus, the AG Opinion constitutes a significant defence against the tax authorities’ claims that the temporal coincidence of payments or the similarity of the amounts paid allows the application of a tax exemption or preferential WHT treatment to be challenged in relation to a given payment.

Furthermore, according to the AG Opinion, when determining the purpose of a given structure, the decisive factor is the awareness of the entity deciding to implement it, which is generally attributed to the entities exercising control over the company (majority shareholders).

Finally, the AG Opinion also yields an important procedural conclusion, as it is the tax authority conducting the proceedings that bears a number of obligations relating to the correct establishment of the facts, including the factual circumstances that are key from the perspective of a given payment. In other words, the AG Opinion shifts the burden of proof from the payer to the tax authority in WHT cases.

In summary, in our view, the AG Opinion:

1. sheds new light on the conditions for applying the dividend exemption,
2. provides numerous arguments for payers involved in disputes with the tax authorities,
3. calls into question the arguments previously used by Polish tax authorities.

Practical implications of the Opinion of the Advocate General of the CJEU

The conclusions drawn from the Opinion of the Advocate General may be of significant importance for the practical application of WHT regulations, particularly in the context of holding structures and dividend payments within capital groups.

They confirm that the mere distribution of dividends within a holding structure, including their subsequent payment to the owner, constitutes a standard element of the operation of capital companies and cannot be equated with abuse. Furthermore, the AG Opinion indicates that neither the similar amount of cash flows nor their temporal proximity constitutes, in itself, grounds for refusing to apply tax preferences, as it is necessary to demonstrate the existence of an artificial arrangement and its direct link to the attainment of a tax advantage.

It should be emphasised that the final decision in this regard rests with the CJEU, and we await the judgment in the case in question. Nevertheless, the conclusions drawn from the AG’s opinion already constitute an important point of reference for taxpayers and tax authorities applying the WHT regulations.

How can we help with dividend payments?

MDDP’s experts offer comprehensive support regarding the application of the dividend exemption, including, amongst other things:

1. checking whether, in a specific situation, the conditions for exempting dividends from withholding tax are met,
2. assessing the economic substance of the recipients of the payments,
3. support in documenting their actual business activities,
4. developing internal WHT procedures in the area of due diligence,
5. representation in applications for WHT overpayment refunds,
6. obtaining opinions on the application of preferential treatment and WH-OSC declarations,
7. assistance with compliance with reporting obligations,
8. representation before tax authorities and administrative courts in connection with both audits and other proceedings.