From 1 January 2021 there are new regulations introducing revised rules for the settlement of tax losses in the case of merger, division, acquisition, ownership change and change of the business profile. She's exaggerating. Article 7(3)(7) CIT Act.
The reduction in the deduction of losses of the taxpayer concerns the occurrence of certain events that lead to the following situations:
- acquisition of another company in the merger process
- the purchase or acquisition of an undertaking or an organised part thereof in exchange for shares on the basis of aport
The loss of the right to settle a tax start will occur if such action results in:
- change, in whole or in part, of the subject matter actually carried out by the taxable person
- change of shareholders or shareholders of the taxpayer at the end of the tax year by at least 25%
The changes introduced exacerbate the existing criteria for deducting own losses. At the moment it is permissible to deduct the loss by another 5 years, with a single possibility to accomplish it to 5,000,000 PLN., and the amount of income reduction must not exceed 50% losses in subsequent years.
Furthermore, the taxable person has to show separately the loss of business activity and capital revenue and income from one source cannot be reduced by tax losses from another source. However, if the company fulfils one all tax losses from previous years cannot be settled or corrected.
On the other hand, restructuring carried out in a given year may result in a loss of the right to settle losses with a possible obligation to correct advances on income tax.
These regulations determine the need for an in-depth analysis of the type of business carried out and the planned restructuring activities, which may result in the maintenance or loss of the ability to settle tax losses over the years in the event of a change in the scope of the company's activities and ownership structures. The reorganisation of the company without loss of the right to settle the loss may be a key element of the entire restructuring process intended to improve the company’s situation.
The concepts used by the legislator in the revised legislation are largely general and vague, which may lead to disputes with tax authorities. Rules for the settlement of tax losses in business reorganisation situations and transactions without reference to precise criteria will redefine the restructuring process in companies.
Author: Michał Zawiła
Partner in RB Restructuring. Licensed Restructuring Advisor, entry No 1050. Lawyer entered on the list at the District Bar Council in Katowice.