EUROPE - The European Commission has moved to stage two in its pursuit of changes to Polish taxation policy, for what officials claim is discrimination against foreign pension and investment bodies.

The EC recently issued the Polish government with the threat of legal action in September last year when it gave the government two months to ease investment restrictions on its open pension funds (OPFs). (See earlier IPE story:EC threatens Poland with court action over pensions)

However, under its latest statement, the EC said it has sent a "reasoned opinion" in relation to Poland's tax regime, as it charges a 20% withholding tax on interest and 19% on dividends paid to overseas pension funds and investment funds, while and non-resident financial institutions are required to pay tax gross of the interest received compared with domestic institutions which pay only on their net profits.

The practice has been challenged of countries elsewhere, and pension funds have recently seen court judgments move in their favour as courts in both France and the Netherlands ruled the practice illegal. (See earlier IPE stories: Pension funds set to receive €500m in Dutch tax rebates and French supreme court acts on pensions rebates)

Under the overseas investment rules raised in September, it was noted that Poland allows its mandatory second pillar fund to invest only 5% of their assets abroad and the actual asset categories themselves are even more restricted in relation to foreign investments, but the EC argues this acts as a restriction to the free movement of capital.

When earlier challenged by the EC, Poland argued it can cap the funds' foreign investments, because OPFs are public entities and therefore part of public finances.

According to the Commission, however, the funds are economic undertakings and thus cannot be treated as public entities, as "they are engaged in an economic activity of investing money of insured persons, regardless of their legal status and role in the pension system, and regardless of the fact that the contributions have a public character".

This latest case - 2006/4093 - is said to be in contravention of Article 49 and 56 of the EC Treaty concerning the freedom to provide services and movement of capital.

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