Recently, a new ruling by the Supreme Administrative Court has emerged, beneficial to taxpayers dated 30 August 2018 reference no. II FSK 2353/16, in which the Court of First Instance acknowledged to the taxpayer that the provision Article 14a CIT does not cover the release of the liquidation assets to a shareholder.
As we have already written, there was a large discrepancy in the case law of the administrative courts regarding the tax consequences of the company's release to its shareholders of assets of the company remaining after the liquidation proceedings.
The question is to assess whether the provision of a provision Article 14a Act dated 15 February 1992 on corporate income tax (hereinafter: "the Corporate Income Tax Act”) also include the issue to shareholders of the assets of the liquidation of the company in non-monetary form or not. In the latest NSA ruling dated 30 August 2018 .
(reference no. II FSK 2353/16)in that regard, the Court of First Instance took the stand for the taxpayer.
Divergent court positions
The position that the release of the company's non-monetary assets to shareholders of the liquidation property is tax neutral was presented in the sentences: WSA in Łódź dated 19 April 2016, reference no. I SA/Łed 146/16 ; WSA in Krakow of: 19 October 2016, reference no. I SA/Kr 943/16 and I SA/Kr 976/16 , 9 November 2016, reference no.
I SA/Kr 993/16 ; WSA in Gdańsk dated 23 November 2016, reference no. I SA/Gd 1129/16 , 8 February 2017, reference no. I SA/Gd 1218/16 ; WSA in Gliwice dated 9 August 2017, reference no. I SA/Gl 478/17 ; WSA in Warsaw on: 27 February 2017, reference no. III SA/Wa 400/16 , 11 April 2017, reference no.
III SA/Wa 377/16 , 27 June 2017, reference no. III SA/Wa 1982/16 , 23 August 2017, reference no. III SA/Wa 2976/16 , 25 August 2017, reference no. III SA/Wa 2627/16, 5 September 2017, reference no. III SA/Wa 2625/16 , 19 September 2017, reference no. III SA/Wa 3019/16, 20 September 2017, reference no.
III SA/Wa 3036/16, 9 November 2017, reference no. VIII SA/Wa 559/17 , and In one of the most recent rulings in this area with 22 November 2017, reference no. III SA/Wa 2631/16.
On the other hand, the NSA first took a different position in the judgment dated 27 June 2017, reference no. II FSK 658/17 , as well as WSA in Bydgoszcz dated 23 November 2016 (judgment preceding NSA ruling) reference no. I SA/Bd 719/16 , WSA in Wrocław dated 16 November 2015, reference no.
I SA/Wr 1563/15 , WSA in Łódź dated 17 November 2016, reference no. I SA/Łed 743/16 , WSA in Poznań dated 27 April 2017, reference no. I SA/Po 1447/16 and WSA in Warsaw dated 28 September 2017, reference no. III SA/Wa 2629/16 and 29 November 2017, reference no. III SA/Wa 3316/16, and dated 18 December 2017 reference no. III SA/Wa 164/17.
In these cases, it was essentially considered that in the light of Article 14a(1) the Corporate Income Tax Act the transfer by the liquidated company to its shareholders of assets remaining after the liquidation constitutes, for the liquidated company, income subject to corporation tax.
This position has also been presented In one of the latest tax interpretations of the Director of National Tax Information dated 22 May 2018 reference no. 0114-KDIP2-3.4010.88.2018.1.PS.
By transferring the assets to the shareholder, the company carries out the disposal concluded under Article 286(1) and 2 k.s.h. The division of the assets of the liquidated company between shareholders is a separate activity and of a different nature than the regulation of liabilities, to which the content explicitly refers Article 14a the Corporate Income Tax Act The division of the company's assets after the settlement of liabilities between its shareholders is, in effect, automatic and results directly from the relevant provisions of k.s.h.
point (e) regular reading of provisions on liquidation assets
Under the rule Article 14a(1) CIT where a taxable person, by executing a non-monetary benefit, fully or partially regulates an obligation, including in respect of a borrowing (credit), dividend, redemption or disposal for the purpose of redemption of shares (shares), the income of that taxpayer shall be the amount of the liability that is to be settled following such provision.
At the same time, according to point (e) in the ordinary wording of the provisions Article 286, and Article 474 k.s.h., the liquidation assets of the company remained after the satisfaction or securing of creditors are shared between shareholders.
When issuing the liquidation assets as a result of the liquidation of the liquidator, the company is the contractor of the last will of the shareholders after the liquidation of the company, and in this sense, an obligation arises to act of the company consisting of transfers of both cash and non-cash assets (gives).
This is therefore a unilateral commitment, i.e. only the company is a debtor (on its side there is an obligation to issue the property) and the partner is only a creditor (he has no obligation to provide the company, he is simply entitled to receive what is left after the liquidation).
By adopting such a construction of the company's liability, it will always be a non-monetary obligation, regardless of which assets will be issued to shareholders – either monetary or non-monetary.
The fact that, in the course of the company's operations or during the liquidation operations, part of the property has been cashed in, and some not (for different reasons) does not mean that by issuing to shareholders the liquidation assets, the company regulates the obligation within the meaning of Article 14a CIT. The company only gives to its shareholders what it should no longer have, because as a result of liquidation it loses its legal existence.
The above essence of the unilateral, non-monetary obligation to issue the liquidation assets by the company to the shareholders is crucial for reading the norm from Article 14a CIT, which provides for taxation by the company of revenue in the amount of the obligation to be regulated following a non-monetary benefit.
As synonyms of "regulating obligations" are indicated: reward (for something), pay (something – some benefit), check, compute (from something), pay (for something), pay the fee (for something), pay the cost (something, action, benefits), pay (for something), settle (from something, from some benefit).
All of the above phrases and the way in which the ‘regulation of an obligation’ is understood clearly indicate that the regulation of an obligation is nothing more than a ‘payment’ by a company for a certain benefit from an obliged person. It should therefore exist on the party entitled to receive the benefit as a result of the ‘regulating the obligation’ — in this case the shareholder — some benefit to the company which is regulated by the company.
In the case of the issue of liquidation assets on the part of the shareholder, there is no benefit for the company. Therefore, there is no obligation on the part of the company to pay the partner, pay him something, pay him for something or pay him for something (for something). On the other hand, there is an obligation to divide and issue the liquidation assets to the shareholder.
The synonym for ‘sharing’ (in this case the liquidation assets) is: distribution, allocation, allocation, distribution, breakdown, parcelation.
At the same time, it should be stressed that the phrase "regulating an obligation" cannot be identified with the division (resolution property) referred to in the Article provision. Article 286, and Article 474 k.s.h.
Consequently, it follows from the above that the division of liquidation assets between the shareholders referred to in the provisions of the Article. Article 286, and Article 474 k.s.h. does not constitute ‘regulating an obligation’ within the meaning of the provision Article 14a CIT and consequently should not be taxed by the company under that provision.
There are no legitimate arguments against, including an analogy with the redemption of shares or dividend payments.
As a result of the redemption of the shares, the company is still in operation, and during the redemption procedure, the shareholder is obliged to transfer the ownership of the shares to the company for redemption (a contract with notarial signatures certified between the company represented by the management board and the shareholder to transfer the ownership of the shares for redemption for remuneration is concluded).
In contrast, the dividend payment materialises the liability being the essence of the company – the shareholder contributes/acquires (or covers) shares/shares and becomes entitled to pay the dividend. These are therefore different from the obligation to issue liquidation assets.
The above shows that even point (e) the correct wording of the provision Article 14a CIT, as well as attempts to use questionable analogys, do not justify taxing the issue of liquidated assets to shareholders in non-monetary form.
Latest NSA position
In the latest ruling of the Supreme Administrative Court dated 30 August 2018 reference no. II FSK 2353/16, The court took the stand for the taxpayer and considered that the provision Article 14a CIT does not concern the issue of the Company's liquidation assets to shareholders. At the same time, he pointed out the reasons for this.
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Spending things, disposing of things—in principle, cannot be regarded as income in the person who spent the thing. Only in a very specific situation – one of which is mentioned under Article 14a the Corporate Income Tax Act – the issue of the item may generate income on the issuing side.
However, this is an exceptional situation and may take place in strictly defined cases, i.e. where the taxable person, by the performance of a non-monetary benefit, fully or partially regulates an obligation of a certain amount, i.e. an obligation of a monetary nature,
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Done Act dated 5 September 2016 amending the Personal Income Tax Act and the Corporate Income Tax Act (Journal of Laws of 2016, item 1550) change of sound Article 12(1)(7) the Corporate Income Tax Act departs from determining the value of income by referring to the nominal value of the subscribed shares, in order to determine that revenue in the value of the contribution fixed in the company's contract or similar act.
However, if the value thus determined is lower than the market value of the subject-matter of the contribution or if it is not in the statutes (contracts) expressed, this income will be set at the market value of that contribution, thus eliminating the possibility of tax optimisation in the liquidation of the company and the return of its assets to shareholders.
Unification of interpretation Article 14a(1) the Corporate Income Tax Act the interpretation body's proposal would consequently result in double taxation of the same income. Once on contribution to the company as a non-monetary contribution and again on return to the shareholder;
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Referring also to the regulation of the Commercial Companies Code, The Supreme Administrative Court states that winding-up proceedings are carried out to end the legal existence of the company.
It is therefore necessary to dispose of the assets of the company remaining after the satisfaction of the creditors, which belong to the shareholders as the entities on which the contributions were based the share capital of the company allowing it to function.
In other words, the company's assets revealed after the liquidation are the shareholders'
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By transferring the assets to a shareholder, the company carries out the disposal concluded under Article 286(1) and 2 k.s.h. The division of the assets of the liquidated company between shareholders is a separate activity and of a different nature than the regulation of liabilities, to which the content explicitly refers Article 14a the Corporate Income Tax Act The division of the company's assets after the settlement of liabilities between its shareholders is, in effect, automatic and results directly from the relevant provisions of k.s.h.
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It is also understood in writing that the liquidation of the company's assets is not a contractual relationship between the creditor and the debtor. Only such a relationship could be about revenue. It is a technical operation which is part of the decommissioning process.
The issue of the property is the last activity of the company related to its property. Assignment of its revenue-generating nature would require the creation of cash reserves in the company for payment of the tax and would delay the liquidation process (cf. Jarosław Sekita: Goods or services instead of payment.
Selected tax problems dateio in solutum, [in:] Tax review Regulation (EU) 1/2016).
Author:
Aleksandra Księżyk – Legal advisor, Director of the Legal Department in Warsaw Chancellery Russell Bedford Dmowski and Partners Law Firm sp. k.