Ministry of Development and Finance 8 May 2017 published on its website a warning about the possibility of applying a tax avoidance clause (Article 119a Tax Ordinance) for certain schemes of aggressive tax optimization. The Ministry in the Communication warns against the use of closed investment funds (FIZs) using bonds purchased within a group of affiliated entities.
According to the Ministry, the initial optimization structure is as follows:
„…The initial structure includes several capital-linked entities in which the parent entity is FIZ. FIZ-dependent companies are vertically linked (mother-daughter-company-type links), with transparent companies, e.g. limited companies or similar companies established in accordance with the laws of other countries, e.g. Luxembourg-based companies with a status similar to limited-activity companies (Societe en Commandite Speciale, in short SCSp).’
In addition, the Ministry also indicates the structure of optimization using bonds:
„…the ownership structure is transformed in such a way that FIZ disposes of its shares in SCSp to another company having the status of taxpayer (e.g. the Special Purpose Company), with the Special Purpose Company financing this acquisition by issuing bonds covered by FIZ. As a result of this transaction, Celowa becomes a shareholder of SCSp (and through it a limited partnership showing income from business activity). At the same time, through the issuance of bonds, the Special Purpose Company undertakes a financial commitment to FIZ, with the title being charged with interest on the bonds, which is the cost of obtaining income for the Special Purpose Company."
The Ministry warns that any transactions described above will be verified by the tax authorities in terms of the tax avoidance clause. If the control authorities find that transactions have been carried out artificially, this may justify the use of a tax avoidance clause.
According to the Ministry, the above-mentioned circumstances by the taxpayer may indicate that they may have been made primarily for the purpose of obtaining a tax advantage, and that the way in which the entities involved were acting was artificial because the economic operators acting in a reasonable manner, guided by economic objectives and the assessment of business risk, do not grant financing for the acquisition of their own assets (in particular shareholdings in subsidiaries) if that property generates income for them.
In the assessment of the Ministry of Finance, transactions concluded in such circumstances may bear the characteristics of aggressive tax optimizations made to avoid taxation. In conclusion, in the Ministry’s assessment, if the tax administrations conclude that the transactions described above bear artificial characteristics, the revenues will not be exempt and interest will be excluded from the revenue costs. Moreover, the finding of tax losses may result in the initiation of tax criminal proceedings.