Agnieszka Gliwińska

Senior Associate
Phone: +48 71 606 04 04
E-Mail

The regulations on special economic zones do not rule out the restructuring of enterprises operating in SEZs on the basis of a zone permit. However, such projects require extra care, especially in the case of a company demerger, so that you do not lose the zone permit or tax relief as a result of the restructuring. 

Company demerger is regulated in the Polish Code of Commercial Companies (CCC) of 15 September 2000. An incorporated company (a limited liability company – sp. z o.o.) and a joint-stock company – S.A.) may be split into one or more incorporated companies. Partnerships may not demerge. A demerging company may transfer all its assets to already existing or newly-created companies, or may carve out only some of its assets and transfer them to another company (or companies).

The business activity described in the zone permit may stay with the demerging company or be transferred along with the separated assets to the target company or companies. The rules of asset split should be set out in the demerger plan to be prepared by the entities involved in the restructuring. Implications of a company demerger for the zone permit are well worth a look.

Succession of rights and obligations

Pursuant to the CCC, the acquiring company joins on the demerger date the demerging company's rights and obligations specified in the demerger plan. This is the so-called partial universal legal succession. It means that along with the assets specified in the demerger plan the acquiring company takes over, by operation of law, the rights and obligations attached to those assets. 

Succession of tax rights and obligations is governed by the Tax Act of 29 August 1997. Article 93c(1) of the Tax Act says that legal persons who take over or who are created as a result of a demerger join – on the date of the demerger or split – all prescribed-by-the-tax-law rights and obligations of the demerged legal person which are attached to the assets assigned to them in the demerger plan. One precondition for tax succession is that the assets taken over in the course of the demerger, or the property of the split legal person in the case of a demerger by split, form the so-called organised part of an enterprise. 

The rules of succession based on Article 93d of the Tax Act apply as well to the rights and obligations arising from administrative decisions issued on the basis of tax law. Consequently, which is confirmed by the more and more popular view of the administrative courts, they also apply to the permits for business in a special economic zone. In the context of the current wording of the Tax Act, we can conclude that the tax succession happens as well in the case of a company demerger.

Company demerger in the context of zone permit

A company demerger also triggers the succession under administrative law. The acquiring company takes over especially all listed in the demerger plan permits, licences and reliefs attached to the assets of the demerged company which were allocated to the demerged company, unless the statute or a decision granting a permit, licence or relief stipulates otherwise (Article 531(2) CCC). 

The above-quoted provision has two important implications:

  • the statute or the decision granting the permit may exclude the transfer of the permit to the acquiring company;
  • there must be a connection between the permit and the assets to be transferred following the demerger.

Decisions granting the permit to do business in a special economic zone usually do not regulate the transferability of the permit to another entity in the case of restructuring, including demerger. 

Yet, the SEZ Act in Article 19(3) stipulates that a permit may be revoked if an enterprise:

  • discontinues in the special economic zone the business for which it obtained the permit; 
  • is in gross breach of the conditions specified in the permit; 
  • fails to fix irregularities found during an inspection referred to in the act within the time limit set in a notice from the minister in charge of the economy;
  • applies for revoking the permit or restricting the scope or objective of the business specified in the permit.

This effectively means that the statutory list of grounds for revoking a permit is a closed list and that it does not include the demerger of a permit holder. 

Therefore, the logical conclusion is that the company demerger itself does not affect the validity of a permit. Importantly, the demerger must not lead to discontinuation of the business in the special economic zone or to a breach of the zone permit, e.g. as regards minimum capital expenditures or the minimum number of employees.

The Regulation of the Council of Ministers of 10 December 2008 on state aid for enterprises operating under a permit to conduct a business activity in special economic zones stipulates that the requirement to benefit from the income tax relief is that the assets obtained as part of the capital expenditures must be held for minimum 5 years, or 3 years in the case of small and medium-sized enterprises. The split of assets during the company demerger does not breach this requirement, so it will not forfeit the permit. The above-described rules of succession of tax rights and obligations referred to in Article 93c(1) will result in the transfer of rights and privileges under the zone permit.

Who is going to get the zone permit?

In the course of a company demerger you have to set the terms on which the zone permit will be transferred to another company or stay in the demerged company after carving out a part of its assets.

The method and scope of the split of the demerged company's assets must be described in detail in the demerger plan. An accurate allocation of assets is a very important step in the demerger process. A permit may not be disposed of freely. A permit must be attached to the assets it is related to. The literature on the subject indicates that if there is no substantive link between the permit and the assets, the permit transfer is ineffective.

Unfortunately, the laconic statutory provisions leave some room for doubt as to the transferability of zone permits in the course of a company demerger. The situation seems clear if the separated assets (or the assets remaining in the demerged company) encompass all assets that were acquired within eligible expenditures. Both the legal literature and the tax rulings agree that the permit is linked to such assets. An example here may be the advance tax ruling of the Director of the Tax Chamber in Warsaw dated 9 March 2015 (IPPB3/423-1308/14-2/MS).

Allocation of assets purchased through eligible expenditures

The problems arise when the ownership of assets (real properties, machinery and equipment), the costs of which were eligible expenditures, is to be split between two or more companies. 

The doctrine widely suggests that a permit, licence or relief cannot be split between two or more companies involved in the demerger. This would be an unlawful interference of private entities (companies) in the content of administrative decisions (of public institutions). Administrative courts share this view. The Provincial Administrative Court in its judgement of 24 January 2014 I SA/Wr 1958/13) held that since a permit cannot be divided between two entities, it is necessary to specify which of the entities will retain the permit. No doubt, the permit cannot end up with the company which gets the assets acquired under that permit. This is because both companies get some of those assets whereas the permit cannot be split. The Ministry of Development also shares the view that a permit is indivisible. 

Despite these controversies the tax authorities issue taxpayer-friendly rulings on such matters. One example could be an advance tax ruling of 25 July 2013 of the Director of the Tax Chamber in Poznan (ILPB3/423-186/13-4/KS). He agreed with the applicant's claim that the exemption on the basis of Article 17(1)(34) of the Corporate Income Tax Act was available not only to the company which held the permit, but also to a newly-created company, and the amount of the exemption to which the latter company was entitled was to be calculated proportionally to the share of the value of assets allocated to it in the merger plan to the total value of tangible assets on which capital expenditures were made (the Director of the Tax Chamber in Katowice issued a ruling in a similar vein on 27 April 2010, file no. IBPBI/2/423-124/09/MO).

Allocation of the zone permit to one company

Since the zone permit cannot be split, we should consider if we can allocate the permit to one company even though the assets to which the permit is linked are divided between two companies.

One of the crucial elements of the permit is that the business conducted in the special economic zone must be the business specified in that permit. The zone permit specifies the type of business that a company may pursue in a SEZ. The permit may be revoked if the enterprise discontinues the permitted business activity in the zone (Article 19(3)(1) of the SEZ Act). Therefore, it seems necessary to assign the permit to the company which will continue the business specified in that permit.

Another issue to be dealt with is the limitation on the disposal of assets acquired through eligible expenditures. Assets, the costs of which were eligible expenditures, may be disposed of after the above-mentioned period of 5 or 3 years. Therefore, linking the permit so closely to the assets does not seem entirely justified. The Ministry of Development has been steadfast so far: a demerging company cannot keep the zone permit if the assets purchased as part of eligible expenditures are divided between that company and the acquiring company. A zone permit requires first of all that certain capital expenditures are incurred, and it is related to the assets purchased as part of those eligible expenditures. Only the concentration of all such assets in one company will allow linking them completely to the permit. A demerger that involves the split of assets breaches that requirement.

Following such a demerger, the permit may be revoked because the Ministry of Development may claim that the company is in gross breach of the permit conditions. 

Since the approach of Ministry of Development is crucial for the decision on demerger, you should first get their favourable opinion about your planned undertaking. You should talk to the ministry to check their current view on the matter. You can justify your enquiry for clarification (interpretation) of the decision by reference to the Code od Administrative Procedure (CAP) (Article 113(2) CAP says, "the authority which has issued a decision must clarify, by way of a resolution, any doubts regarding the decision content"), or to the Access to Public Information Act.

Summary
Demerging a company operating in a special economic zone in Poland

A demerger of a company which pursues business in a special economic zone on the basis of a zone permit requires extra attention. A careless restructuring may deprive you of the permit and tax relief.

In preparing the demerger you should consider the following aspects:

  • the demerger as such is allowed and does not affect the permit validity, provided that the business in the SEZ goes on and the permit conditions are not breached, e.g. as regards the minimum capital expenditures or minimum workforce;
  • an absolute precondition for tax succession, especially for keeping the tax relief, is that the assets taken over in the course of the demerger, or the property of the split legal person in the case of a demerger by split, form the so-called organised part of an enterprise;
  • a permit cannot be disposed of freely – a permit must be attached to the assets it is related to;
  • problems arise when the ownership of assets (real properties, machinery and equipment), the costs of which were eligible expenditures, is to be split between two or more companies;
  • a permit, licence or relief cannot be split between two or more companies involved in the demerger;
  • the Ministry of Development claims that only the concentration of all assets, the costs of which were eligible expenditures, in one company can ensure that they are completely related to the permit. Therefore, a demerger that involves the split of assets may breach that requirement. As a consequence, discussions with the Ministry of Development to check their current view on the matter must precede such a restructuring project.

In case of further questions, please do not hesitate to contact us. Our tax advisers in Rödl & Partner offices in Cracow, Gdansk, Gliwice, Poznan, Warsaw and Wroclaw will gladly review your documentation related to your investment in the Special Economic Zone in Poland and propose a solution to minimise your tax risks. We are also on hand to answer any other tax-related questions you may have. Our offices offer legal support in conducting business within a SEZ and in any other aspects of your operations.

10.03.2017