In its judgement of 9 October 2012 (case file III SA/WA 428/12), the Regional Administrative Court ruled in line with the existing case-law which states that in the event of distribution of property dividend revenues are not generated and consequently there is no related tax obligation. The above issue arose against the background of the following facts. A joint-stock company was the sole shareholder of a limited liability company. A sole-shareholder company of the State Treasury was in turn the sole shareholder of the joint-stock company. The jointstock company considered distribution of property dividend by transferring ownership of shares in the limited liability company to the sole shareholder of the joint-stock company. In this connection a request was submitted to the Minister of Finance for an individual interpretation as to whether the above transaction would produce revenues for the jointstock company.
One of the main arguments in support of the view that a company distributing property dividend is not required to pay tax is that as a result of dividend distribution the company receives no gain. In the light of that no revenues are received and so a tax claim would be without grounds.
In order to ascertain unequivocally whether or not payment of non-cash dividend produces revenues, one should refer to the Act on Corporate Income Tax of 15 February 1992 (Journal of Laws No. 74, item 397, as amended) (“CIT”) and the Commercial Companies Code of 15 September 2000 (Journal of Laws No. 94, item 1037, as amended) (“CCC”). None of the two statutes differentiates between various procedures for dividend distribution. There is no doubt that dividend can be paid either in cash or in assets. Since the legislators decided that there is no need to provide for separate dividend distribution procedures, the tax effects of both the procedures should be alike. In the administrative practice, authorities often seem to miss those similarities. In general, authorities argue without grounds that noncash dividend has to be taxed, since the process of distribution of profit in such form involves transfer of ownership title to assets. Such a transaction generates revenues which require to be taxed.
Contrary to the above view, it must be concluded that unless the provisions of CIT expressly provide that distribution of non-cash dividend produces revenues for the distributing company or that such distribution is a form of transfer of assets against consideration, then there are no grounds to conclude that distribution of dividend is not neutral in terms of tax for the distributing entity. One must agree with the case-law of administrative courts (so held, among others, by the Supreme Administrative Court in its judgements of 12 June 2012, II FSK 1260/11; of 14 March 2012, II FSK 1673/10; and of 8 February 2012, II FSK 1384/10) which construe any doubts in the provisions of the tax law in favour of the taxpayer.
In the light of the above, it must be concluded that in its judgement referred to above the administrative court has rightly found that the transaction outlined above does not produce revenues (no gain) and consequently by no means does any tax obligation arise.
As indicated by the judgements cited above, this view seems to have taken root in the case-law of administrative courts. One can only hope that in the future also public authorities will adopt the view advocated by the courts.