jcomp pl.freepik.com The question, which often arises from customers, concerns whether, at the time of the increase in the share capital of the Company, when new shares were paid out of the reserve capital created from agio, there will be (on the partner side) income to tax resulting in (on the Company's side) the obligation to collect advances on income tax.
Article 24(5)(4) Act dated 26 July 1991 o PIT provides that the income (income) from the share of profits of legal persons is the income (income) actually obtained from this share, including the income allocated to the increase in share capital, and in cooperatives - the income allocated to the increase in the share fund and the income equivalent to the amounts transferred to that capital (fund) from other capital (funds) of such a company or cooperative.
Example:
The shareholders of AAA sp. z o.o., established in 201X, are Mr Kowalski and Mr Nowak. Share capital of AAA sp. z o.o. is divided into 1,000 shares of nominal value 200 PLN each with a total value 200,000 PLN. Kowalski's partner has an AAA 95% shares and partner Nowak 5% shares. Kowalski took over 950 shares in AAA sp. z o.o.
with nominal value 190,000 PLN in exchange for a financial contribution higher than the nominal value of the shares covered, i.e. for 490,000 PLN. Surplus over nominal value of agio shares 300,000 PLN was included in the AAA accounts as a reserve. Nowak took over 50 shares in AAA sp. z o.o.
with nominal value 10,000 PLN in exchange for a financial contribution of 10,000 PLN.
In 201X+1 the share capital of AAA sp. z o.o. has been increased, creating 1,500 new shares in mode Article 260 KSH. The new shares were covered by reserve capital – a transfer of funds from the reserve capital of 300,000 PLN for share capital. Kowalski's partner fell down. 1425 shares in the increased share capital of AAA with nominal value 285,000 PLN, and Nowak's partner 75 shares of nominal value 15,000 PLN.
Thus, in the event of an increase in the share capital from the reserve capital in AAA Sp. z o.o., the shareholders will generate income which is included in the income from the share of profits of legal persons (Article 24(5)(4) PIT Act).
The funds transferred to share capital from the reserve capital will therefore be taxed under the ‘cash capital’ source.
This is due to the fact that the reserve money allocated to the increase in share capital results in an increase in the nominal value of the share, which is the form of indirect participation of the shareholder in the profit of the company. (Case of the WSA in Szczecin by day 30 September 2016 I SA/Sz 630/16)
It is also worth recalling the ruling of the Supreme Administrative Court, which deals with this issue.
Judgment of the Supreme Administrative Court of 15 January 2019 II FSK 268/17:
„The income to be taxed on corporate income arises not only when the resources on the company’s capital came from the profit generated by the company, but also when the capital was provided by the excess over the nominal value of the share, which came from the shareholder’s (agio) payment.’
Judgment of the Supreme Administrative Court of 24 November 2015 II FSK 3996/13:
„As long as the limited partnership was a passenger company, it was not covered by the provisions on income from the participation of legal persons. Also for capital transfers.’
In summary, according to Article 24(5) The PIT Act, the internal capital transfer, results in the formation of income on the part of shareholders, resulting in the obligation for the company to collect advances on income tax.
Author: Paweł Boś
Junior Tax Consultant, related to Russell Bedford Poland 2018. Author of numerous articles on legal and tax matters, published in the industry press. Law student at Leon Kozminski Academy in Warsaw