Tax effects of delays on dividend payment

Receipt of dividend is the basic right of the shareholder of the company and the shareholder of the public limited liability company.

Both the shareholder and the shareholder have the right to participate in the profit resulting from the annual accounts and intended to be divided by a resolution of the meeting of shareholders (the free meeting in the case of a joint stock company). This follows − in the case of companies with o.o.

− from Article 191(1) Code of Commercial Companies with 15 September 2000 1 (further k.s.h.), and in the case of public limited liability companies − from Article 347(1) k.s.h.

There is, however, a question relevant to the shareholder and shareholder, as well as to the company itself, concerning the principle of setting the deadline within which the dividend should be paid.

Introduction

The issue discussed here is reflected in the regulations of k.s.h., according to which the dividend is paid on the date laid down in the resolution of shareholders, and if the resolution of such a date does not specify, in the case of a company with an o.o. dividend is paid on the date specified by the Management Board 2 , and in the case of a public limited liability company, on the date fixed by the Supervisory Board 3 .

However, these rules leave a margin of understatement. While the provisions provide for the determination of dividend payments by means of a resolution of a meeting of shareholders or a resolution of the board of directors (the supervisory board), they leave the authorities far-reaching freedom to determine the time limit for payment of dividends – they do not determine the consequences of the absence of a deadline.

Therefore, in practice, it is possible three variants:

1. the dividend payment date is set in the resolution of the meeting of shareholders (sound meeting) 4 ,
2. in the absence of a deadline for payment of dividend by a resolution of shareholders (in the case of a joint stock company, by a resolution of the general meeting), that deadline shall be indicated in its resolution by the management board of the limited liability company (the supervisory board of the joint stock company)[5],
3. in the absence of a dividend deadline in accordance with the rules laid down in the legislation of K.s.h., it is appropriate to refer to the law on 23 April 1964 Civil Code[6] ((cc) relating to liabilities for which no maturity is specified.

According to the judgment of the Court of Appeal in Warsaw of 25 March 2014, the management may not prevent the payment of the dividend by not adopting a resolution determining the date of payment of the dividend.

Consequently, if the Management Board does not adopt a resolution on the date of payment of the dividend, it is appropriate to apply Article 455 k.c. in conjunction with Article 2 k.s.h. [see e.g. M. Rodzynkiewicz, K.s.h. Commentary, Warsaw 2005, p. 315, t. 5 ; W. Pyziol (in:) K.s.h. Commentary, Warsaw 2001, p. 353, t. 7].

In this context, in the absence of a resolution by the board determining the date of payment of the dividend, the claim for payment of the dividend becomes payable according to Article 455 k.c. immediately after the company has been called upon to fulfil this benefit 7 .

This judgment means that the dividend should be paid immediately after the company has been called upon to pay it. However, it is not immediately a concept identical to the term ‘immediately’, as shown by the Supreme Court ruling from 20 June 2011 8 , indicating that ‘without delay’ should be seen as a real term, taking into account, inter alia, the circumstances of the place and time, taking into account regulations Article 354(355) k.c.

Account entries

From the accounting point of view, both the interest paid and the interest received as a result of the late settlement of the dividend in the accounts should be included. Interest to be paid to shareholders/shareholders will constitute financial costs.

These should be included in the books of that year for which they are due, whether paid or not. This is due to the principle of accrual. In turn the interest due to the entity will be financial income during the period for which it is due.

Therefore, from the point of view of the closure of the year, it is necessary to verify whether the interest has been allocated to the relevant reporting period.

Revenue from the unpaid benefit

Let us consider how to interpret the lack of timely dividend payment in the context of the company's income from the unpaid benefit. The essence of such a benefit is the free (free) benefit of the corporation tax corporation from the financial resources due and payable to its shareholders or shareholders.

Article 12(1)(2) Corporate Income Tax Act with 15 February 1992 9 (Come on. the Corporate Income Tax Act) it is clear that revenue must be considered, inter alia, the value of the benefits received free of charge.

Hence, in the context of Article 12(1)(2) the Corporate Income Tax Act it is justified to qualify in the light of which a company which has not paid its shareholders or shareholders a dividend on time achieves an unpaid benefit. This view is confirmed by the case law of both the administrative courts and the tax authorities.

In accordance with the resolution of the Supreme Administrative Court of 16 October 2006, in force In 2001, the postponement by the meeting of shareholders of a limited liability company of payment due to its sole shareholder of a dividend to which he acquired the right under the rule of K.s.h. meant that that company received an unpaid benefit within the meaning of Article 12(1)(2) the Corporate Income Tax Act 10.

Individual interpretation of the Director of the Tax Chamber in Poznań with 20 September 2013 11

Where the relevant resolution of the meeting of shareholders determines the date of payment of the dividend (in the case in question – 30 June 2013), the use until the expiry of that period of time of funds covering the part of the dividend not paid by that date shall not result in revenue arising from unpaid benefits. Free of charge can be mentioned only if the Company fails to meet the dividend payment deadline.

In the light of the above case-law, there is no doubt that the company’s free use of the financial resources due to shareholders or shareholders as dividends should be eligible as income of the taxpayer (company), resulting from the company’s obtaining an unpaid benefit. However, revenue from this will only arise when the dividend payment claim becomes due (which is confirmed, among others, by the NSA judgment of 21 January 2011 12 ), and thus for the time of the company’s use of that capital, calculated from the expiry of the dividend payment deadline.

The value of this benefit will be determined in the context of the regulation expressed in terms of Article 12(6)(4) the Corporate Income Tax Act However, excluding the case where the granting of loans falls within the scope of the activity of the provider of the benefit, where the value of the benefit is assessed at the prices applied to other recipients[13]. The value of benefits in kind, including unpaid benefits, shall be determined on the basis of the market prices applied to the provision of services or the making available of goods or rights of the same type and species, taking into account in particular their state and degree of consumption and the time and place of access.

In practice, this means that the value of the revenue obtained by the company on the basis of an unpaid benefit consisting in the possibility of using the capital of another person will correspond to the market costs of obtaining it, i.e. the cost of raising capital through the conclusion of a loan or credit agreement, as confirmed by the NSA’s judgment of 20 August 2010 14

At the same time, there is a question of the appropriateness of determining this type of income when dividends, in accordance with the resolution of shareholders or the resolution of the general meeting, are paid in instalments.

The point of view here is that, in the case of a payment of dividends, there will be no formation on the part of the paying company of income from unpaid benefits. Of course, if individual instalments of dividends are paid in time.

Such a conclusion appears justified due to the absence of a dividend payment due before the deadline for payment, including before the deadline for payment of individual instalments. This view is also confirmed by the prevailing position of tax authorities.

Individual interpretation of the Director of the Tax Chamber in Poznań with 16 June 2011 15

The Ratal dividend payment, in accordance with the time limits set in the resolution on the distribution of profits, will not constitute income for the company for unpaid benefits.

This position is also reflected in the Supreme Administrative Court’s judgment of 21 January 2011[16].

It is worth noting that:

• 1. The value of the taxable person’s income from the free-of-charge benefit for the use of someone else’s capital should correspond to the market costs of obtaining such capital by means of a loan or credit agreement.
• 2. Ratual dividend payment shall not give rise to income from an unpaid benefit if the individual instalments of the dividend are paid within the time limits set by the profit-sharing resolution.

Tax aspects of interest paid for delay

The delay in the dividend payment leads to a significant question about the need for the company paying this liability to its shareholders or shareholders to pay by-products in the form of interest for late payment of principal. According to Article 481(1) k.c.

there is a rule whereby, if the debtor fails to comply with the cash benefit, the creditor may claim interest for the time of delay, even if he does not suffer any damage and even if the delay is due to circumstances for which the debtor is not liable.

Therefore, the shareholder or shareholder of the capital company, to which no dividend has been paid in time for the share of profits, is entitled to claim interest for the delay in payment of that claim.

These percentages may be fixed at two methods:

• 1) according to the internal rules adopted, the rate of interest (established, for example, by the status of the company or by a resolution of the meeting of shareholders), including regulations Article 481 k.c. to limit the maximum value of interest due,
• 2) in the statutory amount, if the interest rate has not been otherwise determined.

As a result of the payment of by-products in the form of interest for late dividend payment, doubts arise as to the inclusion of this kind of charge on the tax burden of obtaining revenue.

The principle in the content applies here Article 15(1) the Corporate Income Tax Act, from which it appears that the tax revenue costs are considered to be costs incurred in order to generate revenue from the source of revenue or to preserve or hedge the source of revenue.

However, this does not apply to those listed under Article 16(1) the Corporate Income Tax Act, and thus in a set list of costs not considered tax revenue costs.

When considering the possibility to charge the tax burden of obtaining interest income on dividends not paid in time, paid to the shareholder or shareholder, it is clear to read Article 16(1)(13a) the Corporate Income Tax Act Therefore, the tax costs of obtaining interest income on payments made to the company under the terms and conditions laid down in the separate rules, as well as interest on dividends and other income from the participation of legal persons are not considered to be the tax costs.

Therefore, it is clear that the legislature has therefore excluded the possibility of crediting to the tax costs paid to the shareholder or to the shareholder interest for the late payment of dividends.

An important aspect of the tax nature is also the question of the qualifications paid to the shareholder and to the shareholder of interest for the delay in paying dividends in determining the correct source of income and the existence of any obligations of the company paying those interest of the payer.

Analyzing the Personal Income Tax Act from 26 July 1991 17 (Further u.p.d.o.f.), it seems crucial to determine the source of revenue in connection with obtaining such revenue.

The question is whether such revenue (interest on late dividend payment) should be eligible in the same way as the principal and thus the dividend paid, as income on cash capital 18 , whether it would be appropriate to classify such revenues as revenue from other sources 19 Article 20(1) U.p.d.o.f...

It is worth noting that there has been a significant interpretation discrepancy over the years. Initially, the position of the tax authorities could see that such revenues were to be classified in a manner consistent with the principal (dividend) and therefore as income from cash capital.

Interestingly, with content Article 17 In no way does it appear that the legislator counts the civil-law interest paid by the company in connection with the late payment of dividends to this source of revenue. It is therefore appropriate to qualify in the light of which such revenues in the area of regulations u.p.d.o.f.

should be eligible as revenues from other sources. This was confirmed in the tax rulings.

Individual interpretation of the Director of the Tax Chamber in Warsaw 14 March 2008 20

It must be considered that interest on the late payment of dividends constitutes income for the shareholder receiving it from other sources in question under Article 10(1)(9) the Corporate Income Tax Act

The same was the position of the Director of the Tax Chamber in Katowice in the interpretation of individual tax law from 9 July 2013 21 .

It is worth noting that appropriate content Article 42a u.p.d.o.f., by the end of February of the following tax year, a company which has made to a shareholder (shareholder) who is a natural person of payment of interest in connection with an indefinite dividend payment shall be liable to issue and transfer to taxpayers, as well as to tax offices competent for the place of residence of the taxpayer, information PIT-8C covering only interest income.

In the case of a taxable person subject to a so-called limited tax obligation in the territory of Poland, information PIT-8C shall be deposited with the head of the tax office competent for the taxation of foreign persons.

While in previous years the question of the classification of interest income on the dividend paid after the deadline did not raise any doubts in the area the Corporate Income Tax Act, because the regulations of this law did not distinguish between separate sources of revenue, but In 2018 This matter may already raise reasonable doubts.

Heading Article 7 the Corporate Income Tax Act as applicable from 1 January 2018 establishes that income tax is the income which represents the sum of the income generated from capital gains and income obtained from other sources of income, subject to the cases in which taxation is subject to income.

Simultaneously Article 7b the Corporate Income Tax Act defines a separate source of revenue, indicating the revenue catalogue — capital gains revenue.

Under this catalogue regulation Article 7b(1)(1) point (a) the Corporate Income Tax Act indicates income from corporate profit (subject to Article 12(1)(4b) the Corporate Income Tax Act), constituting revenue actually obtained from this share, including dividend revenue.

Under these rules, the question arises as to whether interest received by the shareholder, a legal person, on the payment of dividends after the deadline should be eligible for capital gains income within the meaning of Article 7b the Corporate Income Tax Act, whether they should be included in the revenue from the remaining source.

Regulations the Corporate Income Tax Act – Like u.p.d.o.f. in the case of such interest paid on its basis – they do not give here point (e) A straight answer. Disposition Article 7b the Corporate Income Tax Act in the list of eligible revenues, the return on capital gains does not mention interest on the out-of-term dividend payment.

This fact therefore leads me to conclude that such interest, as being civil-law, should be eligible for the remaining source of revenue.

Interest on loan for dividend payment as tax costs

The question on the side of the question is whether the tax burden may be taken to account for the revenue incurred in the payment of interest on the loan or loan for dividends to eligible entities.

In fact, companies often face a situation where there is a lack of financial resources for the implementation of this obligation at the specified date of dividend payment. In order to avoid possible negative civil consequences (e.g.

interest payments) and tax consequences for obtaining income from the unpaid benefit, the company decides to enter into a credit agreement or loan with a view to raising the funds that will allow for the timely payment of dividends.

The question therefore arises of the possibility of including in the tax burden the cost of obtaining the income paid capitalised interest on the acquisition of these financial instruments.

In accordance with the principle previously indicated Article 15(1) the Corporate Income Tax Act, The tax costs of obtaining revenue shall be deemed to be costs incurred in order to obtain income or to preserve or secure its source.

Exceptions are those that are listed as non-taxable costs of obtaining revenue in content Article 16 the Corporate Income Tax Act Therefore, First, demonstrate the existence of a link between costing (e.g. payment of interest on credit) and obtaining income or maintaining or securing its source.

Against the background of the apparent divergences in the case law of administrative courts, focusing in particular on the recognition of such expenditure as related to the preservation or safeguarding of the source of revenue, it is important that the resolution of the NSA with 12 December 2011, according to which interest and other expenses related to the loan taken by the limited liability company to pay the dividend due to its shareholders, according to Article 15(1) the Corporate Income Tax Act are not at the expense of obtaining revenue from this company. 21

This view is also confirmed by current NSA judgments (for example with 14 February 2013, reference no. II FSK 1253/11 and 6 April 2016, reference no. II FSK 344/14, Legalis; in an interpretation of the individual Director of the Tax Chamber in Łódź from 7 August 2012, reference no. IPTPB3/423-188/12-2/GG or in an individual interpretation of the Director of the Tax Chamber in Poznań with 30 July 2012, reference no. IPTPB3/423-142/12-6/IR, Legalis.

The interpretative body there showed no basis to charge the tax burden of obtaining the revenue of the public limited company for the expenditure incurred in the implementation of the dividend payment.

It should be noted that the expenditure incurred by the company in the tax year on the payment of dividends as non-tax revenue costs does not affect the value set out in the statement of return CIT-8 the income tax due for the tax year.

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1 Journal of Laws of 2017, item 1577. 2 Article 194(4) k.s.h. 3 Article 348(4) k.s.h. 4 Article 193(4), Article 348(4) k.s.h. 5 Ibid. 6 i.e. Journal of Laws of 2018, item 1025. 7 reference no. VI A Ca 1211/13, Legalis. 8 reference no. CSK 282/10, Legalis. 9 i.e. Journal of Laws of 2018, item 1036. 10 reference no. II FPS 1/06, Legalis.

11 reference no. ILPB3/423-295/13-2/JG, Legalis. 12 reference no. II FSK 1583/09, Legalis. 13 Article 12(6)(1) the Corporate Income Tax Act 14 reference no. II FSK 501/09, Legalis. 15 reference no. ILPB3/423-369/08/11-S/ŁM. 16 reference no. II FSK 1583/09, Legalis. 17 i.e. Journal of Laws of 2018, item 1509. 18 Article 17(1)(4) u.p.d.o.f.

19 Article 20(1) u.p.d.o.f. 20 reference no. IPPB2/415-566/07-2/IŚ. 21 reference no. IBPBII/2/415-371/13/JG, Legalis.