Foreign Tax Credit for Dividend Income
The Full 19% Statutory Rate Prevails Over Treaty Limitations
Polish taxpayers may reduce their withholding tax liability by the full amount of income tax paid abroad, up to the statutory ceiling of 19%, rather than being constrained by the lower rates prescribed in applicable double taxation treaties. This principle was authoritatively established by the Supreme Administrative Court in its judgment of February 28, 2023 (case no. II FSK 1171/22), which dismissed the cassation appeal filed by the Director of the National Tax Information Service.
I. The Legal Framework: Withholding Tax and Foreign Tax Credit Entitlements
The obligation to collect withholding tax falls upon payors maintaining their registered office, foreign establishment, or place of residence in the jurisdiction where the income arises. Pursuant to Article 30a(9) of the Polish Personal Income Tax Act, individuals deriving income from sources outside the Republic of Poland—including participation in capital funds, interest, dividends, and other distributions from corporate profits—are entitled to credit against their domestic tax liability an amount equal to the tax paid abroad, provided that such credit does not exceed the tax calculated at the 19% rate.
This provision carries fundamental implications for Polish tax residents investing in foreign markets. The dispositive question is whether the upper limit of the credit is invariably the 19% rate established under domestic law, or whether it is instead circumscribed by rates specified in applicable double taxation agreements.
II. Factual Background
The case concerned an entrepreneur engaged in foreign investment activities, including open-ended investment funds and equity holdings in foreign corporations. The taxpayer received dividend income from a United States corporation. Critically, he failed to submit the W-8BEN tax form required under U.S. regulations to claim treaty benefits, resulting in the application of the statutory 30% withholding rate under American domestic law.
The taxpayer maintained that, having paid 30% withholding tax in the United States, he was entitled to credit the full 19% against his Polish liability, thereby eliminating any additional payment obligation in Poland.
III. The Administrative Position
A. The National Tax Information Service Ruling
In its individual tax ruling of November 5, 2021, the Director of the National Tax Information Service determined the taxpayer’s position to be incorrect. The administrative authority advanced the following reasoning:
First, dividends and other income derived from participation in corporate profits are subject to taxation under the special regime established in Article 30a of the Personal Income Tax Act. Second, pursuant to Article 30a(2), the provisions of paragraphs 1(1)-(5) apply with due regard to double taxation treaties to which the Republic of Poland is a party. Third, the Poland-United States Tax Convention provides that tax in the source state shall not exceed 15% of the gross dividend amount. Fourth, the fact that the taxpayer actually paid 30% is immaterial—only the 15% treaty rate may be credited.
Under this interpretation, the taxpayer would be obligated to remit an additional 4% to the Polish treasury (19% domestic rate minus 15% treaty limitation).
IV. Judicial Determinations
A. The Provincial Administrative Court in Gliwice (I SA/Gl 24/22)
The taxpayer challenged the ruling before the Provincial Administrative Court, which found in his favor. In its judgment of May 19, 2022, the Gliwice court held that Article 30a(2) of the Personal Income Tax Act concerns the rate of dividend taxation, leaving other matters—including the rules governing foreign tax credits—outside its regulatory scope.
The court emphasized that Article 30a(9) identifies who may avail themselves of the credit and establishes its parameters, yet the entitlement to credit is not contingent upon the existence of any international agreement.
B. The Supreme Administrative Court (II FSK 1171/22)
The Director of the National Tax Information Service filed a cassation appeal, which the Supreme Administrative Court dismissed in its judgment of February 28, 2023. The Court fully endorsed the reasoning of the court below and articulated the following holding:
“Article 30a(2) of the Personal Income Tax Act provides that only the provisions of paragraph 1(1)-(5) shall apply with due regard to double taxation treaties; there is no reference to application of treaty provisions in connection with paragraph 9 of that article. That provision applies to taxpayers subject to unlimited tax liability in Poland who are settling dividends obtained abroad, irrespective of what tax was collected at source (whether at the treaty rate or otherwise). There is no reference whatsoever to bilateral agreements in this regard.”
V. The Court’s Analytical Framework
A. The Unconditional Character of Article 30a(9)
The Supreme Administrative Court observed that Article 30a(9) is unconditional in its formulation—it permits, in every instance, a credit against the Polish income tax liability equal to the tax actually paid abroad, subject only to the ceiling of 19%.
B. The Scope of Treaty References
The Court elucidated the relationship among the various paragraphs of Article 30a:
Article 30a(2) requires modification of the principles set forth in Article 30a(1)(1)-(5) through application of double taxation treaties—but solely with respect to the applicable tax rate.
Article 30a(9) establishes subjective conditions and limitations on foreign tax credits—its application is not dependent upon the existence of any international agreement.
Were the mere reference to Article 30a(1)(1)-(5) sufficient to mandate consideration of treaty provisions, it would follow that the existence of a treaty would also condition application of, for instance, Article 30a(6) or (11)—a proposition that is manifestly untenable.
C. Actual Versus Hypothetical Tax
The Court underscored that Article 30a(9) expressly refers to “tax paid abroad”—there exists no basis for departing from this unambiguous statutory language to substitute a hypothetical figure (i.e., the treaty rate in lieu of the amount actually withheld at source).
VI. Practical Implications for Taxpayers
This judgment carries significant practical consequences for Polish tax residents deriving foreign income from dividends and other capital gains.
A. Affected Taxpayers
The ruling benefits taxpayers who:
- paid withholding tax abroad in excess of treaty rates due to various circumstances (e.g., failure to satisfy procedural requirements for preferential treatment);
- invest in jurisdictions with which Poland maintains no double taxation agreement;
- are settling dividends, interest, or other corporate profit distributions from foreign sources.
B. Operative Consequences
In light of the Supreme Administrative Court’s judgment:
- the upper limit for crediting foreign tax paid is invariably 19% as prescribed by Article 30a(9);
- treaty rates (e.g., 15% under the U.S. Convention) do not constrain the entitlement to credit tax actually paid;
- even where a taxpayer paid more than the treaty rate abroad (e.g., due to procedural omissions), the full amount may be credited—up to the 19% ceiling.
VII. Prospective Amendment of Prior Returns
This judgment opens avenues for reassessment of historical tax positions. Taxpayers who previously—guided by erroneous administrative interpretations—credited foreign tax only to the extent of treaty rates may consider filing amended returns and claiming refunds of overpaid amounts.
It bears noting, however, that such claims remain subject to applicable limitation periods and require proper documentation of foreign tax actually paid.
VIII. Conclusion
The Supreme Administrative Court’s judgment of February 28, 2023 (II FSK 1171/22) constitutes an authoritative precedent in disputes concerning the taxation of foreign capital income. The Court definitively resolved that the entitlement to credit foreign tax under Article 30a(9) of the Personal Income Tax Act is not limited by double taxation treaty rates—the governing ceiling is invariably the 19% rate established under domestic law.
This determination confirms the value of judicial recourse where statutory interpretation remains contested. Effective representation before administrative courts, however, demands specialized expertise and substantial experience in tax litigation.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
