Disposal of an organised part of the enterprise and VAT exemption

The sale of the production plant, which meets the requirements to be regarded as an organised part of the company (hereinafter: ZCP), will not be subject to the provisions of the Act of 11 March 2004 on tax on goods and services[1] (Next: the VAT Act).

According to Article 2(27e) the VAT Act such a part is an organisational and financially isolated group of material and intangible assets, including liabilities, intended to carry out specific economic tasks, which could at the same time constitute an independent undertaking, carrying out these tasks itself[2].

Importantly, it is a condition for this team to be considered as a ZCP that the conditions of organisational, functional and financial separation are met together with the possibility of acting independently in economic trade.

1. Introduction

On 22 May 2020 The Director of National Tax Information issued an individual interpretation of tax law concerning the tax consequences of the divestment of the production plant[3]. Applicants were two companies with o.o.

– one, party to a proceeding which intends to sell second of which a production plant, both of which are located in Poland and registered VAT payers. The company interested in buying the plant will be transferred to its assets and the buyer will continue its operations.

According to the applicants, this plant is now a ZCP and will have such status on the day of sale according to Article 4a(4) the Corporate Income Tax Act, and therefore will be sold to ZCP according to Article 2(27e) the VAT Act, exempt from VAT on the basis of Article 6(1) This bill.

2. Characteristics of the structured part of the enterprise

The applicants argued that the production plant meets the organisational, functional and financial criteria as an independent company which is intended to carry out economic tasks and so will be after the sale transaction. The applicants also stressed that tax authorities have pointed out many times that the ZCP is not the sum of certain components but their organized team.

In organisational terms, the plant which manufactures, sells and distributes food products (it is the branch of the applicant, has a different address as the company, and so it is in the KRS) has been identified in the structure of the company by means of a resolution of its management, with applicants indicating that such separation should take place, according to the doctrine, on the basis of statutes, regulations or similar acts.[4]. The plant has its departments, permanent employees (including specialists in stand-alone positions), the director employed by the management office, and the transfer of staff to the buyer of the plant, according to the sales transaction, will proceed through the transition of the establishment, according to Article 231 Act on 26 June 1974 Labour Code[5].

According to applicants, such assets as property, buildings, buildings, buildings, warehouses, technical and IT infrastructure used in the plant, cars for the operation of production activities, commercial and service contracts, human resources, employee contracts and obligations will enable the acquiring company to carry out business within a separate company[6].

The functional separation of the plant is also evidenced by the self-employment of employees and the withdrawal of relevant contributions to ZUS.

In this context, the joint request for interpretation also draws attention to the judgment of the NSA of 26 June 2008[7], that, in order to sell the company, it is necessary to transfer to the purchaser a minimum of the means to enable it to continue its business activity.

Applicants, on the basis of the financial separation of the undertaking, indicated that it could be allocated revenue, defined costs (e.g.

salaries, renovations, car operation, materials, training and business travel), claims and liabilities, profit and loss account and cash flow account, as well as the allocation of records of economic events relating to that establishment. This plant also has a separate place of cost creation (MPK).

In the assessment of the applicants, compliance by the undertaking with the above criteria means that it constitutes a ZCP and therefore a sale of it, according to Article 6(1) the VAT Act will not be subject to VAT.

3. Judgment of the Court of Justice and the definition of ZCP

The Director of KIS considered the applicant’s position correct, indicating that the provisions the VAT Act does not apply to divestment transactions of an undertaking or an organised part of an undertaking, but the absence of any of the above conditions excludes the recognition of the group of assets of the undertaking as ZCP according to Article 2(27) the VAT Act He also stated that it would not be sufficient for the group of assets to be considered as a ZCP to organise any mass of assets, since it had to be fully distinct, necessary to operate independently in the economic market.

The Director of KIS also referred to the judgment of the TEU of 27 November 2003[8], according to which ‘if a Member State has introduced an option contained in its VAT system In the first sentence Article 5(8) sixth The Directives, recognising that the supply of goods within the meaning of VAT rules does not take place in the case of the issue of all assets, are applicable, including the possibility to restrict its application to the circumstances contained in the sentence second the same paragraph, for each issue of an undertaking or an independent part of an undertaking, including material and intangible components which together constitute an undertaking or part of an undertaking which may carry on its own business. However, the purchaser must express his intention to continue operating the company or part of it, rather than its direct liquidation and sale of stocks.’ Thus, according to the tax, the legal definition of ZCP is included under Article 2(27e) the VAT Act must be interpreted by the prism of content Article 19 Directive 2006/112/EC[9] and in conjunction with the understanding of the concept of ‘transfer of all or part of the assets’.

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1 i.e. Journal of Laws of 2020, item 106 as amended 2 The same record occurs under Article 4a(4) Act on 15 February 1992 on corporate income tax, hereinafter the Corporate Income Tax Act (i.e. Journal of Laws of 2019, item 865, as amended). 3 reference no. 0114-KDIP1-1.4012.133.2020.5.EW. 4.

The applicants cited here the tax interpretations of the Director of KIS: from 27 February 2018, reference no. 0115-KDIT1 2. 4012.877.2017.2.DM and 21 March 2018, reference no. 0112-KDIL13.4012.91.2018.1.JN. 5. I.e. Journal of Laws of 2019, item 1040. 6.

Applicants referred here to requests from, among others, the tax interpretations of the Director of KIS: from 10 May 2019, reference no. 0115-KDIT1-2.4012.220.2019.1.AJ and 15 November 2019, reference no. 0114-KDIP1-1.4012.514.2019.2.EW. 7. Reference no. I FSK 688/07. 8.

Judgment of the Court of Justice of 27 November 2003, Zita Modes Sàrl v Administration de l’enregistrement et des domaines, C-497/01. 9. Directive 2006/112 Council 28 November 2006 on the common system of value added tax, Official Journal of the European Union L, No. 347/1.