From 1 January 2021 the provisions of the CIT Act apply to limited companies which to 31 December 2020 were not taxpayers of CIT. They were attractive to this change due to the form of business. Due to the specific regulation of the liability of partners, they are still very interested.
At the same time, the number of transactions in the trade has increased in the conversion of limited companies into other partnerships (e.g. public companies), which are still transparent tax.
In this context, the consequences of the transformation of the limited partnership into an open/partner company in relation to taxation of undistributed profits from previous years may be interesting.
It is worth mentioning, however, that the legislature has provided for the application of a specific transitional period" to obtain the status of CIT from the outset by the limited partnership 2021. According to Article 12(1) The Amending Company Act, which as of 1 January 2021 have obtained the status of corporate tax taxable person, they may have decided that the provisions of the amended laws shall apply to them and to their revenue and costs from the date on which the 1 May 2021 Many operators have taken advantage of this possibility, so not all limited companies have the status of a CIT taxpayer at the same time, which is also relevant to the subject.
The extension of CIT taxpayers to limited companies has led to some doubts about the tax effects, which have become the subject of many individual interpretations. One of the interpretations in which the issue of tax effects is presented in a fairly transparent manner is the individual interpretation of the Director of KIS of 18 May 2021 with a signature 0111-KDIB1-2.4010.73.2021.4.MS.
In the request for interpretation, the question was whether a limited company, which under the Amending Act became a taxpayer of CIT, would then become a public company, would have to tax undistributed profits from previous years and, if so, when these profits are taxed if the company benefited from the transitional provisions and became a taxpayer of CIT from 1 May 2021.
In accordance with the Article. Article 551(1) KSH law a public company, a partnership company, a limited liability limited company, a joint stock company may be converted into another commercial company. The transformation process is linked to the tax succession of the converted company.
This transformation results in the loss of legal entity by the company being converted, while the company being converted acquires legal entity on the date of entry in the court register. The process of converting companies leads to many tax consequences.
The subject of an individual interpretation by the Director of KIS of 18 May 2021 was the scope of CIT income tax on profits of the company from previous years.
On the ground Article 7b(1)(1) point (j) of the CIT Act, the income from the profits of a legal person, constituting the revenue actually obtained from that share, including the value of the undistributed profits in the company and the value of the profit transferred to other capital than the share capital in the converted company, shall be considered as income from the profit of a legal person, except that the income is determined at the date of conversion.
As a general rule, the transformation of the taxpayer company CIT results in the taxation of undistributed profits.
By introducing transitional provisions, the legislator gave the possibility to apply to the income of shareholders of a limited partnership or a public company obtained from shares in profits from previous years, i.e. before becoming a CIT taxable person, the provisions of laws in force before the date,
in which such a company became a corporate tax taxpayer. So profits generated before 1 January 2021 or 1 May 2021, will be subject to the existing rules and will therefore not be taxed on the basis of the indicated Article 7b(1)(1) point (j) also in the case of later conversion.
The date on which the limited partnership achieved the profits is crucial in this interpretation. The date of their actual payment is not relevant. Therefore, if the profits were achieved by the limited company before 1 May 2021, i.e. before the Company becomes a taxpayer of CIT, their payment to the Company will be subject to the current rules in force before the date on which the Company became a corporation tax taxpayer.
This position was confirmed in other, later settlements of tax authorities, including:
- Individual interpretation of the Director of KIS on 23 August 2021 The signal. 0114-KDIP2-1.4010.199.2021.2.PD – Payment by the limited partnership of the profit generated before the status of the taxpayer of CIT;
- Individual interpretation of the Director of KIS on 8 February 2022 The signal. 0114-KDIP3-1.4011.1053.2021.2.MG – Payment by the limited partnership of the profit generated before the status of the taxpayer of CIT;
- Individual interpretation of the Director of KIS on 1 March 2022 The signal. 0115-KDIT1.4011.942.2021.2.MST – determining the tax effects of the company's payment of undistributed profits generated by the civil partnership;
Individual interpretation of the Director of KIS from 27 July 2022 The signal. 0111-KDIB2-1.4010.289.2022.1.PB – CIT settlements in connection with the transformation of the company.
Individual interpretation of the Director of KIS on 22 August 2022 The signal. 0111-KDIB201.4010.111.2022.5. – Effects in CIT of the distribution of profit from the activities of the company formed before 1 May 2021;
Author: Leszek Dutkiewicz, partner Russell Bedford Poland. Associated with the company from 2011. Director of RBP office in Katowice. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services.
He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices. Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.