Refusals to issue security opinions on the application of General Anti-Abusive Regulations (GAAR)

The Head of National Revenue Administration (KAS) has completed more than 20 proceedings on the application of the General Anti-Abusive Regulations (GAAR). This resulted in the imposition of tax surcharges exceeding PLN 80M. We have written more on this subject here.

What was challenged by the tax authorities?

  • A spin-off of an organized part of the enterprise and transformation of a limited liability company into a limited partnership

As part of the reorganization of the capital group, a limited liability company was transformed into a limited partnership.

The Head of KAS stated that in a described case set of performed operations sought to avoid taxation of undistributed profits generated by the limited liability company. Within the restructuring two entities were separated from the former limited liability company, including the company to which the contributions allocated to both: share capital and reserve capital were made. The contributions were made from the profit generated in previous years. The company did not take over any liabilities – they have been transferred solely to the second of the separated companies.

In the opinion of the Head of KAS, the restructuring is contrary to the purpose of the provisions of the PIT Act, which require the continuation of the principles of valuation of assets transferred in-kind to a partnership and the continuation of depreciation methods of fixed assets.

Refusal to issue a security opinion dated 23 January 2020 ref no. DKP3.8011.19.2019

  • Merger of companies

The structure of the capital group was reorganized by the transformation of a partnership into a company, followed by the sale of shares of this company and its subsequent merger with another company.

In the opinion of the Head of KAS, one of the main aims of the planned merger was to obtain a tax advantage. The authorities noted that planned activities constitute in fact a form of reverse transfer of the assets made in order to avoid taxation. In this case, providing tax neutrality of the merger would be contrary to the purpose and subject matter of the provisions of the CIT Act.

Refusal to issue a security opinion dated 27 February 2020, ref. no. DKP2.8011.11.2019

  • Company restructuring leading to the sale of its shares to a related party

The shares of a company with its registered seat outside of Poland were sold to a newly created company related to the applicant.

In the opinion of the Head of KAS, the transaction was performed to obtain a tax advantage, through the creation of significant loss which resulted from the sale of a package of shares to a related company, at a price significantly different from its original purchase price.

According to the tax authority, the applicant’s action was artificial – in parallel to the sale of shares, the buyer employed several employees who held management functions in the sold company. Therefore, the subject of the transaction was not the sale of shares but in fact transfer of an organized part of the enterprise. In the opinion of the Head of KAS, such an economic goal could have been achieved by, for example, conducting a legal spin-off.

The Head of KAS stated that the tax advantage obtained by the applicant is contrary to the purpose and subject of Article 16 section 1 point 8 of the CIT Act, allowing to reduce income from the sale of shares by costs of their acquisition.

Refusal to issue a security opinion dated 28 May 28, 2020, ref no. DKP3.8011.8.2019

  • The reverse merger of related parties

The subject of the refusal was acquisition (so-called reverse acquisition) by joint-stock company A of the parent company B. Within the merger share capital of the company, A was increased – the company issued new shares to the shareholders of company B. Apart from company B, the sole shareholders of company A were individuals being at the same time the only shareholders of company B.

In the opinion of the Head of KAS, there was no economic justification for the acquisition of company B, which was unable to pay its liabilities. The tax authority stated that the majority of the company’s assets are shares of company A, while the remaining (small) part of the assets is shares of other indebted companies.

According to the tax authority, as a result of planned actions, company A would dispose of the possibility to satisfy its claims against company B, as company A would become both a creditor and debtor for these claims – so-called confusion would take place.

As a result, in the opinion of the Head of KAS planned actions are artificial as there is no reason to assume that a reasonably operating entity would deprive itself of the possibility to satisfy a claim of a significant amount in return for assets that do not compensate the lost claim and involve a real risk of economic loss.

Refusal to issue a security opinion dated 2 June 2020, ref. no. DKP2.8011.18.2019

  • Restructuring of assets inherited by natural persons

Three applicants (family members) inherited the property – land with buildings. The heirs decided on a dissolution of the co-ownership of the acquired property which took place without making additional payments or repayments.

The real estate became the property of the heir who intended to use it in his business activity in the area of rental of commercial premises. A limited partnership was established soon thereafter, to which the owner of the property contributed his enterprise (including the property).

In the opinion of the Head of KAS, contributing an enterprise owned by a family member to a limited partnership created a tax advantage in favor of applicants in the form of a reduction of the liability for non-agricultural business activity from the share in the limited partnership by increasing the tax-deductible costs by depreciation write-offs. Instead, the property should be contributed to the limited partnership before the co-ownership is removed.

In the opinion of the tax authority, the described restructuring is contrary to, among others, the subject and purpose of Article 23 section 1 point 45a(a) of the PIT Act, as a result of the actions applicants would be able to include depreciation write-offs on the overestimated value of the property in the costs, while the overestimation did not involve the obligation to pay inheritance tax.

Refusal to issue a security opinion dated 9 June, 2020 ref. no. DKP3.8011.17.2019

If you have any questions, please do not hesitate to contact our expert:

Łukasz Bączyk
Head of Tax, Board Member

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