The tax consequences of the company's issuance to its shareholders of the assets of the company remaining after the liquidation procedure were marked by a large discrepancy in the case law of administrative courts. The question is to assess whether the provision of a provision Article 14a Act dated 15 February 1992 on corporate income tax (hereinafter: "the Corporate Income Tax Act”) also include the issue of the liquidation assets to shareholders or not.
The position that the granting of the company's liquidation assets to shareholders is tax-neutral has been presented in incorrect judgments: WSA in Łódź dated 19 April 2016, reference no. I SA/Łed 146/16 ; WSA in Krakow of: 19 October 2016, reference no. I SA/Kr 943/16 and I SA/Kr 976/16 , 9 November 2016, reference no.
I SA/Kr 993/16 ; WSA in Gdańsk dated 23 November 2016, reference no. I SA/Gd 1129/16 , 8 February 2017, reference no. I SA/Gd 1218/16 ; WSA in Gliwice dated 9 August 2017, reference no. I SA/Gl 478/17 ; WSA in Warsaw on: 27 February 2017, reference no. III SA/Wa 400/16 , 11 April 2017, reference no.
III SA/Wa 377/16 , 27 June 2017, reference no. III SA/Wa 1982/16 , 23 August 2017, reference no. III SA/Wa 2976/16 , 25 August 2017, reference no. III SA/Wa 2627/16, 5 September 2017, reference no. III SA/Wa 2625/16 , 19 September 2017, reference no. III SA/Wa 3019/16, 20 September 2017, reference no.
III SA/Wa 3036/16, 9 November 2017, reference no. VIII SA/Wa 559/17 , 22 November 2017, reference no. III SA/Wa 2631/16.
On the other hand, the NSA first took a different position in the judgment dated 27 June 2017, reference no. II FSK 658/17 , as well as WSA in Bydgoszcz dated 23 November 2016 (judgment preceding NSA ruling) reference no. I SA/Bd 719/16 , WSA in Wrocław dated 16 November 2015, reference no.
I SA/Wr 1563/15 , WSA in Łódź dated 17 November 2016, reference no. I SA/Łed 743/16 , WSA in Poznań dated 27 April 2017, reference no. I SA/Po 1447/16 and WSA in Warsaw dated 28 September 2017, reference no. III SA/Wa 2629/16 and 29 November 2017, reference no. III SA/Wa 3316/16, and dated 18 December 2017 reference no. III SA/Wa 164/17.
In these cases, it was essentially considered that in the light of Article 14a(1) the Corporate Income Tax Act the transfer by the liquidated company to its shareholders of assets remaining after liquidation constitutes taxable income for the liquidated company.
This position has also been presented In one of the latest tax interpretations of the Director of National Tax Information dated 22 May 2018 reference no. 0114-KDIP2-3.4010.88.2018.1.PS.
Introduction Article 14a to the Corporate Income Tax Act had its context, which cannot be ignored when interpreted. The objective was to apply income tax to so-called silent reserves
Despite the fact that the position is unfavourable to taxpayers, i.e. that the liquidated company is a taxable person for the taxation of CIT with the liquidation assets of the company, was supported by the NSA in the ruling dated 27 June 2017 reference no.
II FSK 658/17, but it is worth noting that the issue is quite controversial because the same court, i.e. WSA in Warsaw, after the NSA ruling, in the space 2-3 months give different decisions, e.g. a judgment beneficial to taxpayers dated 22 November 2017, reference no.
III SA/Wa 2631/16, And then 18 December 2017 adverse position on the reference no. III SA/Wa 164/17. It is worth looking at the arguments presented by the court In both rulings, given that the arguments raised in previous cases are quite comprehensive.
- In the favourable judgment of the WSA in Warsaw for taxpayers dated 22 November 2017, reference no. III SA/Wa 2631/16, the court indicated that:
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on the NSA ruling from 27 June 2017 reference no. II FSK 658/17 , The WSA in Warsaw fully shares the NSA’s view that “in terms of Article 14a(1) it follows that it is applicable in the case of non-monetary benefits carried out in order to settle in whole or in part liabilities of a certain amount.
The provision states that the income of the debtor is the ‘height of the obligation’ which is regulated following a non-monetary benefit.
However, there is a different situation regarding the division of the estate of polyquidaciengo, namely, “the property is shared among the partners” – these words convey the economic and legal nature of the event described in the taxpayer’s request.
The company's commitment is a non-monetary commitment from the beginning, it has no "height". In turn under Article 14a(1) the Corporate Income Tax Act the term ‘regulates... the commitment’ is used and the word ‘regulates’ is used for monetary amounts.
The Authority’s position that the distribution of assets between shareholders (and the surrender of assets to their shareholders) applies Article 14a(1) the Corporate Income Tax Act, is unacceptable, in particular, because it would not be possible to indicate here ‘the amount of the obligation to be paid as a result of such a benefit’, as it provides Article 14a(1) the Corporate Income Tax Act Clearly, the intention of the legislator was not to include Article 14a the Corporate Income Tax Act the type of situation set out in the proposal, since there was no obligation that would be "height" and that could be "regulated";
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not all non-monetary performance to meet the obligation falls within the hypothesis Article 14a(1) the Corporate Income Tax Act An example could be the issue of things for the purpose of carrying out a donation agreement, the object of which was from the beginning. It is clear that a donation in kind does not result in income for the donor. Whereas the non-monetary benefit is fulfilled in order to fulfil the existing obligation;
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Whereas it is worth noting that the release of the assets of the liquidated company to shareholders is also free of charge, without equivalent;
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Introduction Article 14a to the Corporate Income Tax Act had its context, which cannot be ignored when interpreted. The aim was to apply income tax to so-called silent reserves.
This is a notoriety of which, during the period of work on the amendment and its adoption, many were written in the expert press, and later the question of such a ratio legis was reflected in the comments on the bill (see comment by P. Małecki, M.
Mazurkiewicz, Commentary to Article 14 ((a) Corporate Income Tax Act, LEX) and Articles (e.g. J. Sekita, Benefits in kind in place of a cash benefit. Amendment of the provisions from 1 January 2015 , Tax Review 2015, No 4, p. 22 LEX 251369/1).
That's the ratio legis Article 14a the Corporate Income Tax Act points out, among others, the Provincial Administrative Court in Gliwice in judgment of 18 October 2017 ( I SA/Gl 513/17 ), in which, on the margin, it was considered that payment of dividends in kind is regulated Article 14a(1) the Corporate Income Tax Act Finally, the context of the amendment which resulted in the introduction Article 14a the Corporate Income Tax Act, the Authority itself shall be referred to in response to the complaint, even though the wording of the ‘silent reserve’ itself does not explicitly use;
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Introduction Article 14a was intended to tax silent reserves at the time of their implementation, i.e. disposal of the asset. However, the condition for taxation is to disclose the existence of silent reserves. The existence of silent reserves cannot be presumed.
It is impossible to assume that all the liquidation assets of the company are equivalent to the "silent reserves" to be taxed. According to the Court of First Instance, it cannot be accepted Article 14a the Corporate Income Tax Act, that any non-monetary performance by the company leads to its recognition of income.
It cannot be assumed that the legislator introduces Article 14a the Corporate Income Tax Act intended to tax the disposal of assets as such;
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it should be remembered that we are moving in the area of income tax, which is aimed at taxing wealth gains rather than losses.
Income based Article 14a the Corporate Income Tax Act (in fact, an increase in the value of the assets) can be recognised if it can be determined where the non-monetary benefit has been fulfilled instead of the obligation (which has a certain monetary dimension).
Not always, when a non-monetary benefit is fulfilled, the application will automatically find Article 14a the Corporate Income Tax Act;
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to read a provision that – point (e) in fact and automatically, it leads to the imposition of income tax on any non-monetary benefit (in this case, the issue to shareholders of the liquidation assets) is, in the judgment of the General Court, unlawful, incompatible or incompatible point (e) an interpretation Article 14a(1) the Corporate Income Tax Act, nor with its purpose, and would ultimately lead to a distortion of the assumptions on which the income tax is based. There is an association with the saying about "leaving a baby with a bath";
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even if it is assumed that by issuing to the shareholders the remaining assets the liquidated company fulfils the ‘commitment’, that is the obligation to issue them the assets remaining as a result of the liquidation. The wheel's closing anyway.
What is the real value of the assets disposed of compared to their book value, we do not find out in this case. So there's nothing to tax. It is not possible to tax all the assets which have remained in the hands of the liquidated company and which are to be handed over to the partners in case of an accident;
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Whereas it cannot therefore be excluded that the liquidated company has "silent reserves" (there has been an increase in the value of the assets that should be taxed), it is not possible to assume that the assets remaining in its hands (its value) can be identified with the value of silent reserves.
It should therefore be concluded that Article 14a(1) the Corporate Income Tax Act does not constitute a legal instrument for the taxation of any silent provision in the event of the release to the shareholders of the assets of the liquidated company.
It is simply not possible to disclose silent reserves in this situation, so it is not possible to tax them at this point in time in this operation;
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The ruling in the present case does not share the arguments set out in the judgment of the Provincial Administrative Court in Poznań dated 27 April 2017 ( I SA/Po 1447/16 ), in which the court held that the issue of the assets of the liquidation was within the scope of standardization Article 14a(1) the Corporate Income Tax Act and results in an obligation to demonstrate tax revenue in this respect.
On the basis of its ruling, the court focused in particular on the content of the term "commitment".
The Provincial Administrative Court in Warsaw, which dealt with this case, found that other arguments were overwhelming, which were not analysed by the WSA in Poznań, as in particular issues relating to the "height" of the obligation, which is "regulated" by the fulfilment of a non-monetary benefit, and the ratio legis Article 14a the Corporate Income Tax Act;
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in the assessment of the Provincial Administrative Court in Warsaw, examining the present case, the transfer to the shareholders of the liquidated company of the assets remaining after the liquidation clearly does not constitute a source for the liquidated company. It disposes of the assets without receiving anything in return.
It does not obtain and is not to obtain an equivalent, compensation, there is no and there will be no mutual benefit. There is only a loss because there is a final disposal of the assets of the liquidated company.
From an economic point of view, it is therefore impossible for the liquidated company to see any benefits, benefits, wealth increase, etc. Nor is there any additional value that could be considered as untaxed income. There is therefore no basis for such a situation to be subject to income tax.
Content Article 14a(1) the Corporate Income Tax Act cannot be interpreted in isolation from the principles on which income tax is based and in isolation from its normative context;
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if Article 12 the Corporate Income Tax Act does not mention as income the liquidated company is expected to meet vis-à-vis its shareholders (shareholders), so in the judgment of the court it is not possible to interpret the statutory revenue catalogue as an extension, adding situations that are not revenue or accrual.
The interpretation cannot create taxable new facts. The tax obligation must be expressed in the Act ( Article 217 Constitution).
Since it is not clear from the law that the transfer by the company to the shareholder of the property remaining after the liquidation would result in a tax obligation on the Company's part, it is not possible by interpretation to extend the catalogue of sources of revenue for tax purposes;
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in the justification of the government project Act dated 14 April 2014 (printing No 2330, http: / /orka.sejm.gov.pl/Printi7ka.nsf/0/CF356AACB0C52119C1257CC3004DB165/%24File/2330.pdf ) states that ‘the reason for the determination of the value of the income and of the cost of benefits in kind is the fragmented line of jurisprudence of administrative courts in cases relating, inter alia, to the tax consequences of the company’s liability to the shareholder in kind for the dividend due, redemption of shares, liquidation of the company’.
It is further mentioned that the provisions specify the amount and the moment when revenues and costs are generated on the part of the executing taxpayer, the title of repayment of the obligation on the taxpayer, the non-monetary (actual) benefit to the counterparty, the latter term (contrahent) in the judgment of the court is worth highlighting, as is the wording of the "payment".
It should be pointed out that all the legal titles listed in the project justification relate to the benefits to be fulfilled for the performance of an obligation of a specified value.
In the judgment of the court, the justification of the draft amendment (in a small passage here only quoted) clearly highlights the idea pursued by the designer. The court became acquainted with him and concluded that the designer had exposed two Issues: ‘payment’ of dividends in kind and date in solutum.
The explanatory memorandum states that one of the two lines of case law results in the non-taxation of the dividend income generated by the increase in the value of the assets disposed of to another entity (so-called silent provision) and without an economically and legally justified reason differentiates the tax effects of the tax on income tax taxable persons relating to the payment of the disposal of their assets.
It was pointed out that the transfer of dividends in kind became a convenient instrument for tax optimization and avoidance of taxation of income generated by the disposal of assets.
The justification for the project also states: “(...) it is proposed to introduce provisions specifying the amount and the moment when revenues and costs are generated on the part of the executing taxpayer, in the name of the repayment of its liabilities, a non-monetary (in fact) benefit to the counterparty, as well as the rules for determining the values received by the contractor.
second the asset transaction page (...)". The term "repayment" therefore fell out of line with the issue of the assets of the liquidated company to the shareholders, without any prior commitment of the company to them, which would thus be "paid".
It is also notable that, although the justification for the project mentions the liquidation of the company, referring to the disunity of the case law ("dividends, redemption of shares, liquidation of the company"), it is in the provision Article 14a(1) the Corporate Income Tax Act Only dividends and write-offs were mentioned, but the liquidation of the company was not.
For example, the calculation of commitments in the enacted and applicable Article 14a the Corporate Income Tax Act So there were only two other liabilities (e.g. loans, loans) have been added to these situations (dividends, write-offs), whereas the company's liquidation has no longer been mentioned.
The fact that the calculation is an example of a court does not dispute, however, considers it significant that in the wording of the provision "the liquidation of the company", which once only appears in the justification of the project, in a not entirely specified context.
Note that Article 14a(1) the Corporate Income Tax Act does not indicate whether the existence of income in the debtor results only in the execution of a monetary obligation in the form of a date in solutum or whether that principle applies also where the original content of the legal relationship provides for a non-monetary form of benefit. The new regulation provides for the ‘regulation of an obligation’ in non-monetary form, without referring directly to the circumstances whether the non-monetary benefit is the result of the application of the date in solutum
II. Whereas In the next, adverse to taxpayers of the WSA ruling in Warsaw, dated 18 December 2017 reference no. III SA/Wa 164/17, The court argued as follows:
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Note that Article 14a(1) the Corporate Income Tax Act does not indicate whether the existence of income in the debtor results only in the execution of a monetary obligation in the form of a date in solutum or whether that principle applies also where the original content of the legal relationship provides for a non-monetary form of benefit. The new regulation provides for the "regulation of an obligation" in non-monetary form, without referring explicitly to the fact that the non-monetary benefit is the result of the use of datio in solutum ;
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under the provision under consideration, the legislator has only made an example of the obligations which, by means of a non-monetary benefit, result in the need to recognise income, as demonstrated by the use of the term “including”, which is synonymous with the terms “as well”, “among other things”, “for example”, “in particular”, etc. The purpose of the calculation is to identify examples of liabilities which, by way of non-monetary benefit, result in the need to recognise income;
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It should also be indicated that under Article 14a(1) the Corporate Income Tax Act it is stated explicitly that this provision applies, inter alia, to situations where the taxable person regulates the redemption or disposal obligation for the purpose of redemption of shares.
The liquidation of the company can be compared to the situation where all shares are decommissioned at the same time. There are no reasons why Article 14a(1) the Corporate Income Tax Act would be used in the event of redemption of shares and would not be used in a similar situation, i.e. in the event of liquidation of the company;
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Interpretation point (e) row Article 14a(1) the Corporate Income Tax Act therefore leads to the conclusion that only situations where the regulation of the undertaking takes place in cash will be outside its scope.
Contrary to the submissions of the complaint, the grounds for application Article 14a(1) the Corporate Income Tax Act there is no money liability between the parties. For example, the obligations of the legislator for the borrowing or dividend may also take the form of non-monetary liabilities.
According to Article 720(1) k.c., by means of a loan agreement, undertakes to transfer to the person taking a certain amount of money or belongings only in relation to the species, and the recipient undertakes to return the same amount of money or the same amount of property of the same species and quality.
In turn, the content of the dividend claim is the payment of the cash benefit. However, with the agreement of all shareholders, it is possible for the company to fulfil a benefit other than money (so-called "in-kind dividend") (yes A. Opalski, Share capital. Profit. Retirement, LexisNexis 2002, LEX No. 213785);
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according to Article 150(1) k.s.h. the provisions concerning the liquidation of the limited joint stock company shall apply mutatis mutandis to the dissolution and liquidation of the limited stock company. Article 468(1) sentence first k.s.h.
provides that liquidators should terminate the current interests of the company, collect claims, comply with obligations and liquidate the company's assets. The doctrine indicates that cashing in assets is the principle of liquidation proceedings. However, this is not the only rule applicable to the liquidation of assets.
It is possible to settle with the creditors of the company using the material components of the company, it is possible to divide in nature among the shareholders when everyone agrees to it (yes A. Kidyba, Comment updated to Article 468 Commercial Companies Code , LEX Legal Information System;
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Since the principle is to cash the assets of the company in liquidation, it is incorrect to assume that the obligation to transfer to the shareholders of the liquidated company the assets remaining after the liquidation is an obligation from a non-monetary start.
Thus, it should be considered that this is a cash obligation from the outset, which may exceptionally be realised by the company through the transfer of assets in kind to shareholders.
If the assets of the company are cashed in in the liquidation, there is no doubt that the company in liquidation will generate revenue from the sale, which is the subject of corporation tax;
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Since the obligation to transfer to the shareholders of the liquidated company the assets remaining after the liquidation is a financial obligation from the outset, the transfer to shareholders of the assets of the company in liquidation in nature should be seen as fulfilling the obligation by providing in kind. This is therefore the situation referred to in the standard hypothesis under Article 14a(1) the Corporate Income Tax Act;
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in the judgment of the court, the consequence of application Article 14a the Corporate Income Tax Act it is to align the effects of the regulation of liabilities in kind with the effects which the provisions of the act entail with the execution of obligations in monetary form.
In this way, the principle of equality is applied to the law, prohibiting the different treatment of entities in a similar situation.
In view of the above principle, it must be concluded that the situation of the entity regulating its obligation by providing in kind is not materially different from that of the entity that disposes of the previously owned asset by earmarking income for the settlement of the monetary liability.
In this context, it should be noted that before the introduction of the Corporate Income Tax Act Article 14a The provisions of this act did not have any effect on the debtor's in-nature regulation of obligations.
In view of the above, the situation of the taxpayer governing his obligation thus differed diametrically from that of the entity regulating the undertaking by monetary means after the disposal of that component.
Regulation of the commitment in first the method was tax-neutral, whereas, with the prior disposal of the asset in order to obtain funds to settle the cash liability, the Corporate Income Tax Act entailed the obligation to recognise revenue and the cost of obtaining it.
Introduction Article 14a the Corporate Income Tax Act allowed the situation of taxpayers of this tax to be balanced regardless of the way in which they were regulated.
Application of the provisions Article 14a(1) the Corporate Income Tax Act does not lead to double taxation, preventing only non-taxation related to the regulation of the obligation in kind;
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without affecting the outcome of the interpretation Article 14a(1) the Corporate Income Tax Act the applicant maintains that the characteristic of each income is the definitive nature of the benefit received.
With regard to such arguments, it should be pointed out that according to Article 12(1) the Corporate Income Tax Act, revenue, subject to section 3 and 4 and Article 14, are in particular: money received, monetary values, including exchange rate differences (point 1); the value of goods or rights received, as well as the value of other benefits in kind, including the value of goods and rights received free of charge or in part for payment, as well as the value of other free or partially for payment, with the exception of benefits related to the use of fixed assets received by self-government budgetary establishments within the meaning of Act dated 27 August 2009 on public finances and public utility companies with exclusive participation of local government units or their associations from the Treasury, local government units or their associations in free management or use (point 2).
From the provisions two It should be concluded, as a general rule, that the taxable person is to receive the income tax on a corporation, cash value, property or rights in a definitive manner. In other words, in principle, income under the Corporate Income Tax Act should be recognised on a cash basis.
The doctrine states that in order for money or monetary value to be regarded as income for the purposes of that law, they must comply one the basic condition, namely, must be received, which means that they become definitely the property of the taxpayer who received them (so W. Dmoch, Corporate Income Tax, comment. Wyd.
6, Warsaw 2017, available in Legalis database - comment on Article 12). However, it should be noted that this view refers only to money and monetary values which are recognised as revenue on a cash basis.
Contrary to the claims of the complaint, the definitiveity of a given delivery does not always constitute a necessary condition to be regarded as tax revenue.
It is clear from Article 12(3) the Corporate Income Tax Act, The revenue due, even if not actually received, after excluding the value of the returned goods, the grant of discounts and constituencies, shall also be considered as income relating to economic activities and special agricultural production units achieved in the tax year.
The content of this provision shows in a clear manner that the condition for a sufficient examination of the income related to economic activity is merely the due diligence of the activity of the delivery and not its definitive receipt. Thus, in some cases, the legislator deviates from the cash-based method of accrual method.
Notwithstanding the above, it should be noted that the normative content Article 14a(1) the Corporate Income Tax Act is reflected in the fact that this provision, for the purpose of achieving the objectives of taxation, creates revenue in relation to events which do not fall within the general concept of revenue from Article 12 the Corporate Income Tax Act In other words, regulations Article 14a(1) the Corporate Income Tax Act they are not just developments, explications of general principles of income recognition expressed under Article 12 the legislation in question, but they are an essential basis for their recognition.
Consequently, the grounds for the action rightly indicate that the liquidation of the Complainant and the related transfer of assets to the Complementaries and shareholders do not meet the general - resulting from the Article 12(1)(2) the Corporate Income Tax Act - the conditions for the creation of income.
In such situations, despite the lack of income according to the cash flow principle, there is a creation by Article 14a(1) the Corporate Income Tax Act revenue for the purpose of achieving the objectives of taxation;
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the transfer of the assets of the liquidated company to shareholders is an activity covered by the disposal Article 14a(1) the Corporate Income Tax Act The consequence of this is the correct application of the provision Article 27(1) the Corporate Income Tax Act The judgment of the Provincial Administrative Court in Poznań must also be divided into: 27 April 2017, reference no.
I SA/Po 1447/16 The arguments on the existence of the possibility for the liquidated company to pay the tax, in line with the arguments contained in the contested interpretation on the matter at issue.
In a situation such as that set out in the request for an individual interpretation, it is possible for the limited partnership to comply in liquidation with the obligation to recognise revenue from the issuance of the liquidated assets and to pay an advance on the tax,
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in the judgment of the court taken over by the interpretation authority Article 14a the Corporate Income Tax Act is derived from the content of this provision. An interpretation is sufficient to make such requests point e) the correct and functional interpretation of the provision. Establishment of a justification for the project Act dated 14 April 2014 printing 2330) the amendment of the Corporate Income Tax Act, the Personal Income Tax Act and the amendment of certain other laws is only of auxiliary importance.
In view of the arguments put forward by each party, the position appears to be correct and more appropriate first, that the release of the company's liquidation assets to shareholders is tax-neutral.
In particular, the specificity of the company's liquidation institution and the issue of liquidated assets to shareholders, the civil analysis of the concept of ‘responsibility’ or ‘regulation’ of liabilities in the event of liquidation, and the purposeful interpretation of the provision are relevant Article 14 a the Corporate Income Tax Act in the light of the reasons for the draft law introduced.
However, in view of so many differences in case law as presented at the outset, it appears that urgent intervention of the enlarged NSA composition and a clear settlement of the case are necessary.
Author:
Aleksandra Księżyk – Legal advisor, Director of the Legal Department in Warsaw Chancellery Russell Bedford Dmowski and Partners Law Firm sp. k.