Ruling description

The Supreme Administrative Court (NSA) ruled on February 12, 2015 in case no. I FSK 1814/13 that there are no legal grounds for taxing non-monetary remuneration received for the voluntary redemption of shares in a company with VAT. The same position was taken by the Provincial Administrative Court (WSA) in Wrocław in its judgment of February 11, 2015 (case file no. I SA/Wr 2444/14).

Comment

Taxation of assets transferred in kind to shareholders in lieu of cash for the redemption of shares is a controver- sial issue, often giving rise to disputes with tax authorities. Administrative courts have so far failed to come up with  a consistent stance on the matter (cf. e.g. the NSA rulings of May 10, 2012 in case no. I FSK 1010/11 or September 1, 2011 in case no. I FSK 1212/10), something the tax authorities like to point out when ruling against taxpayers, which they do in most cases.

The tax authorities hold that while the redemption of its own shares by a company is not in itself subject to VAT, the transfer of goods (such as real property) in return for the shares the company intends to redeem ought to be assessed for VAT since a transfer of this sort is tan- tamount to a delivery of goods against payment. The tax authorities also point out that a company effecting a transfer of this kind operates in the capacity of a taxpayer as any transfer of ownership of real property owned by the company must always be construed as a transaction  made as part of its business operations (cf. e.g. the tax ruling no. ITPP2/443-1303/14/AP issued by the Director of the Tax Chamber in Bydgoszcz on December 22, 2014).

Nevertheless, administrative courts have recently ruled in favor of taxpayers on several occasions, finding that payment by companies of non-monetary remuneration in exchange for shares redeemed on a voluntary basis was made in circumstances which do not bear the hallmarks of business activity. Accordingly, transactions of this kind must be seen as remaining outside the scope of VAT. The NSA also stated in the ruling reviewed here that the tax authorities split voluntary shares redemption into two actions, a division that is artificial and unwarranted, whereas in fact payment of remuneration to a sharehold- er, whether in cash or in kind, is not a legal transaction distinct from the redemption of shares. This payment is a component element of a single civil law transaction a voluntary redemption of shares which must be seen as an integral whole, and no logical reasons are to be found in the VAT Act for dividing it up into smaller component elements. Positions to that effect were presented by the NSA in its judgments of December 9, 2014 (case no. I FSK 1853/13), April 25, 2012 (case no. II FSK 1950/10) and January 8, 2014 (case no. II FSK 169/12), among others.

In this situation, and especially bearing in mind the consistently unfavorable disposition demonstrated by the tax authorities in cases of this kind, businesses con- templating restructuring exercises involving voluntary redemptions of shares in exchange for non-monetary consideration must expect problems with the tax author- ities over VAT payments. To make matters worse still, the non-monetary payment for the redeemed shares may be interpreted in terms of a sale of assets by a company that is subject to CIT (Article 14a of the CIT Act). Given this environment, taxpayers are well advised to consider alternative ways of transferring assets while minimizing their tax exposure.