1. How the Fight Against Abuse Changed Withholding Tax
Withholding tax (WHT) is one of the oldest instruments for taxing income earned in international relations. As a rule, it applies to cross-border payments of dividends, interest and royalties. Its economic rationale is relatively straightforward. The state in whose territory profits are generated seeks to tax the transfer of those profits to another tax jurisdiction.
From the outset, however, this mechanism created an obvious conflict between states’ fiscal interests and the need to support foreign investment. Any additional tax imposed on capital flows increases the cost of investment and reduces a location’s attractiveness to capital.
For this reason, the first Parent-Subsidiary Directive (90/435/EEC) was adopted on 23 July 1990, with the aim of eliminating the economic double taxation of dividends paid between companies from different Member States. In 2011, it was replaced by the currently applicable Directive 2011/96/EU. One of its fundamental principles was the exemption from WHT for dividends paid between qualifying EU companies. Initially, the system relied on relatively simple conditions, primarily an appropriate level of equity participation.
It quickly became apparent, however, that the exemption provided for in the Directive could be used in tax-optimisation structures. Various holding companies established in jurisdictions offering favourable tax solutions, particularly Luxembourg, the Netherlands and Cyprus, became especially common. In response, both national legislators and EU institutions began a systematic process of tightening the system.
In Poland, a key milestone was the amendment, effective as of 1 January 2017, that introduced a definition of a beneficial owner into the Corporate Income Tax Act. At the same time, the legislator began to place increasing emphasis on examining the genuine economic activity of recipients of payments. As follows from the reasoning of the Supreme Administrative Court in case II FSK 1150/25, it was after this amendment that the tax authorities began to develop an administrative practice that made access to WHT preferences contingent on satisfying beneficial owner and economic substance requirements.
The next stage was the introduction of the pay-and-refund mechanism. In practice, this meant abandoning the automatic application of exemptions and reliefs in favour of procedures requiring prior verification by the tax authorities. Opinions on the application of preferences were introduced, additional documentation obligations emerged, and for payments exceeding specified thresholds, payers increasingly had to withhold tax first and only then apply for a refund.
Administrative practice went even further than the statutory rules. The Head of the National Revenue Administration frequently refused to issue preference opinions, particularly in relation to holding structures. Arguments concerning insufficient economic substance, lack of beneficial owner status or the artificiality of a structure repeatedly appeared. As a result, taxpayers found themselves in a reality that can hardly be described as anything other than a state of permanent regulatory uncertainty.
2. Two Landmark Supreme Administrative Court Judgments and Two Opposing Directions
Against this background, two lines of case law of the Supreme Administrative Court gained particular significance.
The first is represented by the judgment of 6 February 2026, case II FSK 1150/25. The Court set aside both the judgment of the Regional Administrative Court and the tax authorities’ decisions denying a WHT refund to a Luxembourg holding company. Most importantly, the Court unequivocally held that Article 22(4) of the Corporate Income Tax Act does not make the dividend exemption conditional upon the recipient possessing beneficial owner status. The Court conducted a detailed historical analysis of the statute and emphasised that while the legislature introduced a BO requirement for interest and royalties, it did not do so for dividends. Such a requirement therefore cannot be added through interpretation.
At the same time, the Court rejected the tax authorities’ concept of “effective taxation” and took a very restrictive view of the application of Article 22c of the Corporate Income Tax Act, indicating that the mere existence of a holding company or limited economic substance is not sufficient to establish an abuse of law.
Several months later, on 8 July 2026, the Supreme Administrative Court issued a series of judgments under reference numbers II FSK 185/25, II FSK 818/25, II FSK 863/25, II FSK 79/26 and II FSK 80/26. In those cases, the Court adopted a diametrically different position regarding the look-through approach (LTA). It held that the dividend exemption is available only to an entity directly holding the required participation in the company distributing the dividend. Even if the beneficial owner of the income is an entity higher up in the group structure, it may not benefit from the exemption if it does not satisfy the direct-shareholder requirement.
This led to a rather paradoxical situation. In II FSK 1150/25, the Court held that a beneficial owner requirement cannot be added to the dividend exemption because it is not provided for in the statute. In the July judgments, however, the same literal approach led the Court to reject the application of LTA. Moreover, the Court’s position proved less favourable to taxpayers than the Ministry of Finance’s explanatory guidance of 3 July 2025, which allowed consideration of the beneficial owner when assessing entitlement to the exemption.
3. The Economic Context Often Missing from Case Law
One weakness of Polish administrative jurisprudence is its traditional focus on interpreting legal texts, combined with relatively limited interest in the economic consequences of judicial decisions.
Meanwhile, the taxation of cross-border financial flows is of crucial importance for foreign direct investment. Even more important than the level of tax itself is legal certainty. Investors can accept a certain level of taxation. What they find much harder to accept is a situation in which, for years, it remains uncertain whether a given structure will be considered lawful.
The European Commission appears to have recognised this problem precisely. After years of progressive tightening of the system, on 24 June 2026 it presented a package of reforms referred to as Tax Omnibus. The Commission openly states that its objective is to enhance the competitiveness of the European economy and reduce regulatory costs for businesses.
The most revolutionary proposal is the complete abolition of the minimum shareholding thresholds currently provided for in the PSD and IRD. This would mean abandoning the 10% shareholding requirement for dividends and the 25% requirement for interest and royalties. The Commission also proposes moving away from mandatory ex ante procedures and making broader use of the solutions developed within the FASTER Directive.
If these proposals were to enter into force in their current form, the Supreme Administrative Court judgments regarding the requirement of direct ownership of a 10% shareholding could lose much of their practical significance. The dispute over the scope of the look-through approach would largely become irrelevant.
At the same time, the Commission does not propose eliminating anti-abuse instruments. Beneficial owner requirements, GAAR clauses and national anti-avoidance regulations are intended to remain part of the system. This means that the significance of judgment II FSK 1150/25 may, in the long term, prove greater than the significance of the July judgments.
4. Will the Revolution Actually Occur?
At present, this question cannot be answered.
Tax Omnibus is only at the beginning of the EU legislative process. The project requires acceptance by Member States, which have traditionally been reluctant to abandon instruments affecting their budget revenues. The Commission itself assumes that political agreement will not be reached before the end of 2027, implementation would occur by the end of 2028, and the most far-reaching changes relating to WHT exemptions would not apply until 2037.
It is therefore possible that the proposal will be significantly modified or will share the fate of other ambitious EU tax initiatives that never progressed beyond the negotiation stage.
Nevertheless, a fundamental dispute about the philosophy of taxing cross-border investment is already visible. On one side stands a model based on increasingly detailed control, economic substance and anti-abuse measures. On the other side is a growing conviction that excessive regulatory complexity is harming the competitiveness of the European economy more than tax optimisation schemes themselves.
The history of WHT in Europe therefore seems to be coming full circle. After more than a decade of fighting tax avoidance, the question increasingly arises whether the time has not come to focus once again primarily on competitiveness.
