The concept of an organised part of an enterprise in tax laws

The recognition of a team of tangible and intangible components as an organised part of a company under tax laws is often fundamental to determining the tax consequences of various types of transactions.

Under the law of 11 March 2004 on tax on goods and services[1] Any form of divestment of an undertaking or an organised part of an undertaking shall be considered to be an activity which is not subject to that tax, with all the consequences.

On the other hand, under the Income Tax Act, if an organised part of the company is the subject of a non-monetary contribution (port) then no income shall be fixed at the date of its payment.

Even more significant are the consequences of the split-up of capital companies, when the assets issued (and when the assets remaining in the split-up are split up) do not constitute an organized part of the company, for example, on the part of certain restructuring parties there will be an obligation to demonstrate revenue, which is classified at the same time as income from capital gains.

Introduction – definition of an organised part of the enterprise

The same definition shall apply in all tax laws which refer to an organised part of the enterprise.

An organised part of an undertaking is understood to be an organisational and financially distinct group of material and intangible assets, including liabilities, intended to carry out certain economic tasks, which could at the same time constitute an independent undertaking carrying out these tasks itself (Article 4a(4) Act on 15 February 1992 on corporate income tax[2], Come on.

the Corporate Income Tax Act, Article 5a(4) Act on 26 July 1991 on personal income tax[3], continue, Article 2(27e)) the VAT Act

It is worth noting that the definition of the ground the VAT Act is also an implementation Article 19 Directive 2006/112 to 28 November 2006 on the common system of value added tax[4].

That provision provides that, in the case of a transfer, whether on a fee or free of charge or as an aport to the company of all or part of the assets, Member States may consider that the supply of goods has not taken place and that in such a case the person to whom the goods were transferred will be treated as the successor to the transferor.

Where the recipient is not fully taxable, Member States may take the measures necessary to avoid distortions of competition. They may also take all necessary measures to prevent tax evasion or avoidance by using the provisions of this Article.

Judgment of the Court of Justice of the European Union 10 November 2011[5] considers that the finding that a transfer of an undertaking or an independent part thereof has taken place within the meaning of that provision requires that all of the transferred components be allowed to operate independently (as in the judgment of the Court of Justice of 27 November 2003[6]).

The fact that an organised part of an undertaking forms a pool of assets capable of carrying out independent (self-contained) business activities must be understood to mean that, in the form in which it is disposed of, it can carry out certain economic tasks.

In other words, it is possible to carry out certain economic tasks through this particular set of assets, not only in combination with other assets, or only in combination with the buyer’s company.

As the NSA acknowledged in its judgment of 24 November 2016[7], included in the definition found on the ground the VAT Act the characteristics of an organised part of the undertaking, such as organisational, financial and functional separation (understanding the purpose of carrying out specific economic tasks) consist of the ability of the assets or parts of them to operate independently in the case-law of the TEU.

Almost identical wording in other tax laws (the Corporate Income Tax Act and u.p.d.o.f.

– insignificant difference compared to the VAT Act, Whereas the use of the term ‘means this’ instead of ‘understands’ which define an organised part of the company requires the adoption of the argument that, while the fundamental principles of tax law are respected, the importance given to this concept by the legislator is the same in both income tax and in the tax on goods and services.

This definition shows that, in the context of the above-mentioned tax laws, an organised part of an undertaking can be referred to when a number of conditions are cumulatively fulfilled. It is only possible to recognise that there is ‘the ability of assets or parts of them to carry out independent business activities’.

Separation in an existing company

An important issue, and often in practice, is the fact that an organised part of the company must be distinguished from the third the organisational, financial and functional levels already in the existing enterprise.

This is not because the transfer of a set of assets which, after being incorporated into the assets of the buyer and taking certain actions (e.g.

the conclusion of lease contracts, hiring or separating a group of employees to operate this activity) will be able to function as an independent establishment (division, department, etc.), but to transfer such a set of assets which is already capable of acting independently in such a capacity.

The organisational aspect of the separation means that the components that form the ‘part of the enterprise’ should have an organisational feature. This characteristic should be present in the ‘existing undertaking’, i.e. within the activities of the taxpayer and concern a specific set of components forming part of that undertaking (e.g.

in the form of a separate establishment unit, branch). Organisational separation means that an organised part of an undertaking is identified in official documents, e.g.

statutes, organisational rules; in addition, the fact that an organised part of the undertaking is separated may (but does not have to) be registered through an appropriate entry in the KRS.

For example, when assessing the separation of certain assets, account should be taken of the situation in the contributing entity in which they must constitute a whole. However, it is not enough to be able to operate in the future using a separate establishment.”[8].

In conclusion, it is necessary to have and operate an organised part of the company within the existing seller’s company.

The financial aspect of the separation means that it should be possible to assign to a separate group of assets, to the structures of the taxpayer, certain financial indicators, including in particular the revenues and costs and the liabilities and liabilities of that team. Such allocation should be possible in particular using e.g. the accounting system[9].

The functional aspect of the separation means that a separate set of assets must serve to carry out certain economic tasks. The organised part of the company must be a functionally separate whole, i.e.

include the elements necessary for the self-execution of economic activities and the potential capacity to function as an independent economic operator. The material and intangible assets of an organised part of the enterprise are intended to enable the business to take place within a separate independent enterprise[10].

In practice, it is important to determine whether the transferred assets constitute a sufficiently organised set of material and intangible components (including a complex of rights, obligations and things) that they are capable of carrying out the economic tasks assigned to the undertaking.

Therefore, in order for part of the company's assets to be considered as an organised part of it, it must objectively (and not only in the subjective belief of the entrepreneur) have potential capacity to operate on the market as a stand-alone economic operator.

The material and intangible assets of an organised part of the enterprise must be able to enter into business within a separate company.

In conclusion, the conditions for organisational, financial and functional separation must be fulfilled already within the framework of an undertaking which plans to trade for the sale of an organised part of the undertaking before that transaction. The functional separation is not fulfilled when it occurs only in an entity to which a specific combination of property and non-material components has been transferred.

Material and Immaterial Components Team

The above definition shows that an organised part of a company must constitute a combination of material and intangible components, which means that the components of such a team should be, in particular, fixed assets, turnover, liabilities and human factors, i.e. staff.

The statutory definition does not assume that all these components must occur cumulatively. However, the rules are both a "team" of material and intangible components.

In this context, it is worth mentioning the position presented in the case law that the legal act may concern the sale of the company (including the part of the company organised, e.g.

cars) despite the exclusion of certain elements of the property (including the mentioned expressis verbis under Article 551 Act on 23 April 1964 Civil Code[11]) from the legal act of divestment of an undertaking, if the exemptions do not invalidate the definition of the term ‘enterprise’ in the sense in question.

This significance includes any set of intangible and material assets for the performance of specific economic tasks, whether it covers all or only part of the entity’s assets[12].

Given the above, we are certainly not dealing with an organised part of the company in the event of the divestment of individual components – these will never constitute a team capable of doing business. Therefore, the transaction which is exclusively property does not constitute an organized part of the undertaking.

And here in practice, in some situations, problems may arise...

Real estate

Well, among the representatives of the tax office and among the compositions of the ruling courts In the first instances[13] there are doubts when, for example, the property being disposed of is a transfer of the rights and obligations arising from the leases of the property.

Only the Supreme Administrative Court seems to have quite a clear position on this issue.

In the opinion of the NSA, it does not constitute an organised part of the company's sale of real estate, even if, together with this activity, the acquirer enters into the rights and obligations arising from the lease agreements concluded with tenants by the previous owner.

In the NSA judgment of 26 January 2018[14] The court considered that if the acquirer rents the acquired property (it enters into the contracts concluded by the previous owner on the basis of the terms of the assignment), but its role, unlike what the seller had previously done, is limited solely to their passive ownership (the buyer does not take over any employees of the seller who continues to manage the properties), the acquired property cannot be considered as an organized part of the company.

The Court of First Instance showed that there was no organisational and financial separation of the real estate activities of the seller’s business.

Previously on AMC's...

24 November 2016[15], The NSA also stated that the built-up property does not in itself constitute a whole capable of doing its own business, and thus do not constitute an organized part of the company, even if it was also used by the seller for the business activity of renting these properties or their parts or their construction works and parts thereof (an analogous position was taken by the NSA in its judgment of 30 November 2017[16]).

The property itself does not form a whole capable of carrying on its own business unless it is financially and organizationally isolated in the structure of the seller.

The use of the property by the seller for the purpose of renting it, as by the buyer, does not prejudge that the transaction is the subject of an organised part of the company. In all the judgments of the NSA, it points out that without a financial and organisational element it is impossible to speak of an organized part of the company.

Real estate under construction

The company, and even more so its organised part, cannot be considered to be a construction project consisting of building real estate (e.g. office premises).

This is what the NSA found in its judgment of 30 November 2017[17], in which he stressed the fact that an economic activity could not be carried out with the seller in the facilities not completed, and consequently there was no organized part of the company which could be further transferred.

Even if, after the purchase of the property, the purchaser continues to build the property and rent the premises, since the buildings are under construction and are not suitable for business, we are dealing with the sale of a construction project rather than a construction company or its organized part).

Commitments

Contrary to the claims in the past that the lack of transfer of receivables and liabilities makes it impossible to dispose of an organised part of the company[18], it should be considered that the material and intangible components of an organised part of the undertaking should be transferred in such a way as to enable the buyer to undertake business within a separate undertaking.

This qualification is therefore not dependent on the transfer of all obligations related to the component group.

This position was confirmed in the NSA judgment of 12 May 2011[19], in which the court stressed that the definition of an organised part of an undertaking does not require that all obligations must necessarily be included in the transferred assets, but only those without which the organised part of the undertaking loses its functional character: ‘where the seller demonstrates the willingness to transfer the liabilities together with the remaining part of the undertaking, and only the lack of the creditor’s consent to change the debtor is hindered, this fact should not affect the assessment of whether or not we are dealing with an organised part of the undertaking’.

In the Court’s view, when considering the definition of an organised part of an undertaking, account must be taken, in addition to the grammatical interpretation, of a functional interpretation.

Summary

The rich case law on the interpretation of the concept of an organised part of an undertaking is evidence of ongoing disputes between traders and tax authorities. Interestingly, taxpayers are often more aware of the legal and tax consequences of their activities if they are subject to an organised part of the company than to a proper understanding of the concept. This is particularly the case when a property emerges among the assets. Only a detailed analysis of many conditions allows proper tax qualification

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