The concept of ‘value of shares accepted (as it would have been accepted) for tax purposes’ as a new condition for fiscal neutrality of restructuring

On 1 January 2022 the amendment of the PIT Act, among others, entered into force[1] and CIT[2] introduced by the so-called ‘Polish Deal”[3]. As part of this amendment the rules on the taxation of the restructuring of entities have changed, including those on the exchange of shares.

Amendment under Article 24 PIT Act

one The amendments concern, inter alia, the wording Article 24(8b)(4) PIT Act (and Article 12(11)(4) The CIT Act), which states that the share exchange transaction will remain tax-neutral, inter alia, provided that the value of the shares acquired by the shareholder is no higher than the value of the share exchange that would have been accepted for tax purposes if the share exchange had not occurred.

The concept of ‘value of shares accepted (as it would have been accepted) for tax purposes should therefore refer to the statutory concept of ‘tax value of an asset’ which the legislator uses in both the PIT Act and the CIT Act

Amendment under Article 8db PIT Act

Similarly, the amendment introduced additional conditions for maintaining the tax neutrality of the merger or the division of companies, namely that the income (income) of the shareholder of the company being acquired or shared is not taxable at the time of the merger or division of companies.

one of these terms and conditions, it is required that the value of the shares (shares) allocated by the acquiring company or the newly established company should not exceed the value of the shares (shares) in the acquired or shared company that would have been accepted by that shareholder for tax purposes if no merger or division had occurred.

This condition has been introduced under Article 8db(2) PIT Act (and Article 12(4)(12) CIT Act).

Interpretative doubts

The above mentioned new grounds for maintaining the fiscal neutrality of restructuring transactions in companies may raise interpretation doubts, in particular as regards the understanding of the concept of ‘value of shares accepted (as would be accepted) for tax purposes’. This concept has not been defined anywhere by the legislator, and therefore, in order to read it correctly, use the justification for the draft law "Polish Deal”, and to establish a certain consequence of the legislator's use of the term ‘tax value of the asset’ in the PIT Act and the CIT Act.

From the content of the explanatory memorandum to the draft law ‘Polish Deal” it follows that the legislator's wish was to restrict the use of tax neutrality of restructuring transactions understood as a specific form of ‘transfer of the time of taxation of income from the division or merger of companies’[4].

The legislator also points out in the explanatory memorandum that, as a result of the restriction of the application of the tax exemption for the moment of merger or division of companies, it was necessary to introduce standards in the PIT Act on the principles of determining such income and its taxation.

Consequently, Article 24(5) The PIT Act has been added point 7a, which indicates that in the event of a merger of companies or companies which are not legal persons or the division of companies in other cases than certain Under point 7 – the income (income) from the participation in the profits of the legal persons is fixed at the day preceding the date of merger or distribution of the excess of the issue value of the share (share) of the acquiring or newly bound company allocated to the shareholder of the company being acquired or divided over the expenditure for the acquisition or acquisition of the share (share) in the company being acquired or divided accordingly calculated according to the Article 22(1f) either Article 23(1)(38) or shares in a company which is not a legal person; if the division of the company takes place by the separation of the assets of the company which is an organised part of the company, the cost of obtaining revenue shall be the expenses incurred by the shareholder (shareholder) for the acquisition or acquisition of the shares in the shared company, determined in such proportion as the value of the transferred assets of the company of the organized part of the enterprise to the value of the assets of the company shared immediately before the division.

The above gives rise to the recognition that the legislator's will was to maintain the "continuation" of the tax valuation of shares in restructuring transactions, in order to tax the tax increase in the value of the shares allocated above the tax value of the shares transferred/disposed by that shareholder.

The concept of ‘value of shares accepted (as it would have been accepted) for tax purposes should therefore refer to the statutory concept of ‘tax value of an asset’ which the legislator uses in both the PIT Act and the CIT Act.

According to this definition, the tax value of an asset shall mean the value previously not included in any form in the cost of obtaining revenue within the meaning of Article 22 PIT Act or Article 15 The CIT Act, which would have been adopted by the taxpayer for such a cost, should the component be disposed of by him for a fee[5].

Author: Rafał Dąbrowski

Lawyer, tax adviser included on the list of National Tax Advisory Board and licensed restructuring adviser. At Russell Bedford responsible for the Department of Tax Advisory. Author of numerous tax-related articles published in the industry press.