{"id":2571,"date":"2019-08-21T00:05:05","date_gmt":"2019-08-21T00:05:05","guid":{"rendered":"https:\/\/new.lexplorers.pl\/?p=2571"},"modified":"2019-08-20T17:27:19","modified_gmt":"2019-08-20T17:27:19","slug":"will-polish-company-pay-income-tax-liquidation-assets-passed-shareholder","status":"publish","type":"post","link":"https:\/\/lexplorers.pl\/en\/will-polish-company-pay-income-tax-liquidation-assets-passed-shareholder\/","title":{"rendered":"Will a Polish company pay income tax on liquidation assets passed on to its shareholder?"},"content":{"rendered":"

Once Article 14a of the Polish Corporate Income Tax Act went into force, it was uncertain whether this provision applied to situations where a company\u00a0under liquidation passes on its assets to a shareholder\u00a0in non-monetary form.\u00a0Administrative courts were not in agreement either.\u00a0However, the latest rulings of Polish Supreme Administrative Court seem to settle this issue in favor of taxpayers.\u00a0Therefore, a\u00a0 company under liquidation should not pay tax on assets transferred to its shareholder as part of the liquidation process.<\/strong><\/h3>\n

\u00a0<\/strong><\/p>\n

By way of introduction<\/strong><\/h3>\n

 <\/p>\n

Article 14a of the Polish Corporate Income Tax Act entered into force on January 1, 2015.\u00a0According to its wording, if the taxpayer settles in whole or in part a liability, including a liability under a loan (credit) incurred, dividend, redemption or disposal for redemption of shares, by providing a non-cash consideration, revenue of such a taxpayer is the amount of the liability settled as a result of such a consideration. However, if the market value of the non-cash consideration is higher than the amount of the liability settled with it, revenue should be defined as the market value of the non-cash consideration.<\/p>\n

 <\/p>\n

No clear courts\u2019 position<\/strong><\/h3>\n

 <\/p>\n

Until now, Polish tax authorities and some administrative courts, including Supreme Administrative Court, held that along with the liquidation arises an obligation of a company towards its shareholder to transfer liquidation assets, if any. If such an obligation is performed by providing a non-cash consideration (e.g. by way of transfer of real property or movable asset), then a company under liquidation should recognize revenue in accordance with Article 14a of the Polish Corporate Income Tax Act. Such revenue, less tax deductible expenses, essentially\u00a0should be subject\u00a0tax at a rate of 19 percent.<\/p>\n

 <\/p>\n

At the same time,\u00a0however, there were courts presenting a\u00a0different position.\u00a0According to them, the\u00a0transfer of liquidation assets to a\u00a0shareholder does not generate any revenue for a company under Article\u00a014a\u00a0of the Polish Corporate Income Tax Act.\u00a0The transfer of liquidation assets by a company is\u00a0a purely\u00a0technical\u00a0act\u00a0that forms part of the liquidation process.\u00a0By doing it a company does not settle any liability towards its shareholder. What is more,\u00a0a company receives nothing in return. It\u00a0is the last act preceding the end of existence of\u00a0such a\u00a0company.<\/p>\n

 <\/p>\n

Supreme Administrative Court\u2019s rulings in favor of a taxpayer<\/strong><\/h3>\n

 <\/p>\n

In 2018 and 2019, Supreme Administrative Court had a change of heart when it comes generating revenue on the side of a company transferring liquidation assets to its shareholder in non-monetary form.\u00a0In court\u2019s opinion, the assumption that the transfer of liquidation assets generates taxable revenue for a company under liquidation would constitute the unlawful broadening interpretation of Article\u00a014a. At the same time, the court stressed that the application of the said Article is allowed only if there is a legal relationship based on mutual performances as a result of which one party is obliged to pay the other a certain amount of money but at the end of the day settles this liability by providing a non-cash consideration. The transfer of liquidation assets, the court follows, does not result from such a legal relationship. It is just a technical\u00a0act\u00a0that forms part of the liquidation process. If it generated taxable revenue, a company would have to create additional cash reserves which would delay the liquidation.<\/p>\n

 <\/p>\n

More precision as a de lege ferenda<\/em> postulate\u00a0<\/strong><\/h3>\n

 <\/p>\n

The new rulings of Supreme Administrative Court\u00a0may\u00a0be the announcement of unification of case law which \u2013\u00a0from the\u00a0point of view of legal certainty \u2013 is a desirable thing. Once again,\u00a0however, the question must be asked why new tax regulations are subject to doubt\u00a0and, worse, divergences in case law.\u00a0At this point, nothing else remains but to appeal to the legislator to create\u00a0more\u00a0precise provisions that leave no room for tax authorities and courts to interpret them in an arbitrary or expanding way.<\/p>\n

 <\/p>\n

Tomasz Piejak, trainee attorney-at-law, and Wojciech Jaranowski, Private Client Practice, GWW<\/p>\n","protected":false},"excerpt":{"rendered":"

Once Article 14a of the Polish Corporate Income Tax Act went into force, it was uncertain whether this provision applied to situations where a company\u00a0under liquidation passes on its assets to a shareholder\u00a0in non-monetary form.\u00a0Administrative courts were not in agreement either.\u00a0However, the latest rulings of Polish Supreme Administrative Court seem to settle this issue in […]<\/p>\n","protected":false},"author":7,"featured_media":2566,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1024,1029,71],"tags":[1311,1312,1313,1280],"coauthors":[],"class_list":["post-2571","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-areas-of-interests","category-private-clients","category-bez-kategorii-en","tag-liquidation-of-a-company","tag-case-law","tag-revenue","tag-income-tax"],"acf":[],"yoast_head":"\nWill a company pay tax on liquidation assets passed on to its shareholder?<\/title>\n<meta name=\"description\" content=\"It seems that Polish courts had a change of heart when it comes to the application of Article 14a of the CIT Act to the transfer of liquidation assets.\" \/>\n<meta name=\"robots\" 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