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dr hab. / dr Marcin Jamroży

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New provisions of the Personal Income Tax Act ("PIT Act") and of the Corporate Income Tax Act ("CIT Act") are going to enter into force on 1 January 2017. The Act of 5 September 2016 amending the PIT Act and the CIT Act has been published in the official Journal of Laws (Journal of Laws of 2016, item 1550). The Act amends, among other things, the rules for taxation of transactions involving in-kind contributions, that is transactions consisting in making in-kind contributions to companies liable to income tax (hereinafter as "companies" or "company", as the case may be). The changes apply both to persons taxable with PIT and to those taxable with CIT. 

Legal status until 31 December 2016

Pursuant to current legislation, the revenue of any person who makes an in-kind contribution other than an enterprise or an organised part thereof to the company is the face value of the shares received in return for the contribution (Article 17(1)(9) and Article 21(1)(109) of the PIT Act and Article 12(1)(7) of the CIT Act. By referring to appropriate application of Article 19 of the PIT Act and Article 14(1)–(3) of the CIT Act, the provisions say that whenever the face value of the taken shares does not match their market value, tax authorities can revise the revenue amount by determining the market value of shares. However, according to the standpoint presented in court judgements, the face value of shares is generally not subject to market mechanisms, thus it is impossible to investigate if the face value of shares matches their market value (for example, the judgement of the seven-judge panel of the SAC of 20 July 2015, file no. II FSK 1772/13). 

Legal status from 1 January 2017

The change which is to be effective from 1 January 2017 is that the revenue of any person who makes an in-kind contribution other than an enterprise or an organised part thereof to the company will be its value specified in the statutes or articles of association of the company, and in the event of lack thereof – in another similar document. If that value is lower than the market value of the in-kind contribution, or if it is not specified in the company's statutes, articles of association or another similar document, the revenue will consist of the market value of the contribution as of the day of the transfer of ownership title to the subject of the contribution.

As a consequence, from the income tax perspective, generally it will no longer be so important which part of the contribution is earmarked for the share capital and which for capital reserves (agio). 

Transitional regulations

The Act provides for transitional regulations. If the ownership title to the subject of the above-mentioned in-kind contribution is transferred to the company in the tax year commenced before 1 January 2017, and the related revenue is earned after 31 December 2016, the revenue will be determined on the basis of the provisions currently in force (the revenue will be the face value of shares taken in return for the contribution). This is because the revenue referred to in Article 17(1)(9) of the PIT Act and in Article 12(1)(7) of the CIT Act is generally earned on the day of the registration of the company or on the day of entering the company's increased share capital in the register. 

Tax deductible costs

Moreover, the Act provides for a significant change which does away with restrictions on recognising as tax-deductible costs the depreciation charges on the part of initial value of tangible and intangible assets, acquired in the form of in-kind contribution, which has not been appropriated to the share capital of the company (repeal of Article 16(1)(63)(d)) of the CIT Act). 

However, pursuant to the transitional regulation, if the revenue of any person who makes an in-kind contribution earned from the taking of shares in the company in return for the contribution is determined on the basis of Article 17(1)(9) of the PIT Act or Article 12(1)(7) of the CIT Act in the wording valid until 31 December 2016, then the exclusion under Article 16(1)(63)(d)) of the CIT Act will apply. 

Consequences of new taxation rules in Poland

The new regulations significantly influence the increase of tax burdens imposed on entities (PIT and CIT taxable persons) making in-kind contributions other than an enterprise or an organised part thereof to companies. So, now is the last chance to make such a contribution on the old, more beneficial conditions.

From 1 January 2017 (save for the transitional regulations) the revenue for an entity that makes sich an in-kind contribution will be the arm's length value of the contribution. If during an inspection by tax authorities it turns out that the value of the contribution entered in the statutes/articles of association of the company (or another similar document) is lower than its market value, or that the value of the contribution has not been specified in the above-mentioned documents, tax authorities will have the right to investigate the value of the in-kind contribution in relation to its market value determined as of the day of the transfer of ownership title to the subject thereof. 

To minimise the tax risk in this regard, from 1 January 2017, before making an in-kind contribution to a company one should consider applying for a reliable expert appraisal just as a form of security. Such an appraisal may be a proof that makes it possible to avoid any disputes with tax authorities in respect of the determination of the market value of the in-kind contribution.

If you are interested in more details about this issue, please contact our legal team. Rödl & Partner would be glad to assist you in this process and provide you with tax advice in Poland on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.

18.11.2016