End of January 2020 information has been published on the refusal to deliver a precautionary opinion requested In September 2016 That means over 3 years, applicants expected this information to protect them from the application of the tax avoidance clause in order to finally receive information that their planned activities were to take place still in 2017 do not meet the criteria for issuing a safety opinion.
Applicants asked the Minister for Development and Finance to issue a safety opinion in relation to planned restructuring operations, which were to include the allocation of resources collected on the reserve capital to finance the separation of organised parts of the company and the transfer of these funds to a limited liability limited company which had been operating until now.
The rules on the issuing of safety opinions shall authorise the authorities to examine in detail the factual situation and the planned action as regards the grounds for artificial action to achieve tax benefits.
The joint application by the companies identified the objectives which applicants wanted to achieve in relation to the planned activities – tax aspects were one of the stated objectives, but in addition to them, 10 other reasons such as the company’s desire to ‘wean’ the assets of an operating company in order to focus on its core business; the unique function of a company acting as a ‘quasi-fund’, the preferred model of generational succession by the shareholders, or the desire to formalise the distribution of profits in capital companies.
The basic tax advantage was to consist of the non-taxation of the value of the share capital and of the reserve resulting from the transfer of an organised part of the company to a capital company, which would then be converted into a limited partnership (and therefore not a legal person).
The value of the capital raised was 26,000,000 PLN – The exclusion of this value from the tax base would therefore give a tangible benefit to income tax. This tax objective was indicated by the company as one with benefits but not as principal or exclusive, the Head of the KAS disagreed with such an assessment.
In the end, the Head of the KAS considered that the main objectives of the planned activities were to obtain a tax advantage.
In the Authority’s view, other reasons and objectives for carrying out the operation had to be considered as not significant at most compared to the possibility of achieving the tax advantage in question, and the conduct of those activities met the condition of the artificial mode of action in question under Article 119c section 1 Tax Ordinance.
The head of the KAS expressed the opinion that it was doubtful that applicants would have decided to carry out the activities in question at all if they had not been able to obtain a tax advantage.
Did Chief KAS have the right to publish such information? As far as possible, the rules on the issuing of safety opinions empower the authorities to examine in detail the actual and planned actions as regards the grounds for artificial action towards the attainment of tax advantages.
However, he pays attention to the period of time which has elapsed since the submission of the application until the final reply of the Head of the KAS.
It is important to note that, in the course of the application for a safety opinion, applicants brought complaints to administrative courts, resulting in decisions: WSA in Warsaw dated 8 June 2018 and NSA dated 31 January 2019 However, the period of time elapsed between the issuance of the NSA judgment (January) 2019 and the opinion is virtually one year.
From the perspective of the reality of economic turnover, this is a long time, of course, during the whole procedure, seeing in what direction the tax authority of the applicant has been developing the position of being able to take action, but from the perspective of taxpayers who are considering the possibility of requesting a safety opinion, the conduct of this procedure may act in a disincentive manner.
Surely taxpayers will consider both the risk of a negative response and the prolonged duration of the whole procedure, which means not only uncertainty about the outcome but also additional costs.
Source:
Information relating to the refusal of a precautionary opinion 23 January 2020, reference no.. DKP3.8011.19.2019
Author
Leszek Dutkiewicz, partner Russell Bedford Poland. Associated with the company from 2011. Director of RBP office in Katowice. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services.
He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices. Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.