Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

February 26, 2020

Polish administrative court rules on “look-through” approach related to withholding tax on interest paid through a bank account of a Korean real estate trust

Executive summary

On 4 February 2020, the Voivodeship Administrative Court in Gliwice (VACG) issued its decision in a case that relates to a Korean investment institution (Investor) which receives interest payments from a Polish entity. Under the arrangement, interest payments are made through a trust bank account in Poland owned by a Korean real estate fund (Fund) and transferred to the Investor. The VACG confirmed that the role of the Fund in the structure is to transfer profits through interest due on loans receivables paid by the Polish entity to the Fund’s beneficiary (Investor). Accordingly, the preferential tax rate applicable to interest based on the tax treaty between Poland and South Korea (PL-SK DTT) should apply, if other conditions are met.

Detailed discussion

The Polish tax authorities took a strict position in relation to the interpretation of Article 11 (2) of the PL-SK DTT with respect to this case. Tax authorities claimed that application of the preferential withholding tax (WHT) rate depends on fulfilling a condition contained in a phrase “if the recipient is the beneficial owner of the interest.” In the case at hand, the direct recipient of the interest is a custodian bank acting in the name of the Fund and then interest is distributed to the Investor who invested in the Trust. Therefore, in the view of the tax authorities, expressed in a tax ruling, the Investor could not apply the preferential tax rate resulting from DTT PL-SK provisions, as it is not a recipient (in a narrow literal meaning) of interest, despite the fact that it then receives that interest from the Fund.

The VACG reviewed the case and decided to repeal the tax ruling. It emphasized that the role of the Fund (and its bank account) is only to transfer profits from the Polish entity to the Investor on a regular basis. Thus, in order to satisfy the above-mentioned condition, the beneficial owner clause, despite the wording of this treaty, shall not be referred to as a direct recipient (in this case being the intermediary), but to an actual recipient of the interest payments. Such interpretation allows for the application of Article 11 (2) of the PL-SK DTT, meaning that the Investor can benefit from the lower WHT tax rate.


The discussed VACG verdict is especially relevant for investment structures where there is a look-through entity pooling funds of the investors and passing on profits. At its core, it touches upon the application of a purpose-oriented interpretation of the provisions of a tax treaty, which should be in line with the purpose of such treaties and their role in international taxation. The decision may have an impact on the interpretation of treaties concluded by Poland with Hungary, Ireland, Israel and Slovenia, among others, which have similar wording of the beneficial owner clause as in the South Korea treaty.

At present, there are no clear rules regarding application of a ”look-through” where the literal wording of a tax treaty requires that the very recipient of a payment is its beneficial owner. Therefore, each investment structure should be analyzed separately to assess and manage the risk related to the application of a ”look-through” approach.

The verdict is not final yet as the tax authorities can still file for an appeal of last resort before the Supreme Administrative Court. If the VACG’s position is upheld, although it does not formally become applicable to other cases, it would be supporting argument for other investors in similar situations.

The discussed judgment was obtained by EY Poland for its client.

For additional information with respect to this Alert, please contact the following:

EY Doradztwo Podatkowe Krupa sp. k., Warsaw
EY Doradztwo Podatkowe Krupa sp. k., Wroclaw
Ernst & Young LLP (United States), Polish Tax Desk, New York



The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more