Ruling description

In its judgment of January 10, 2014, the Provincial Administrative Court (WSA) in Wrocław (case no. I SA/Wr 1959/13) ruled that, despite the status of the entity being entitled to receive the assets of a company transferred as a result of its liquidation, such transfer is subject to VAT. In the opinion of the Court, neither Article 7 Section 2 of the VAT Act nor Directive 112 requires an examination of the status of the entity receiving goods as a result of a liquidation or free-of-charge transfer. Moreover,  a situation in which the company has sold its assets and paid tax on that sale, and its shareholders have received the sale proceeds, cannot be treated as being any different from that in which shareholders have received goods which used to belong to the company in liquidation. For VAT purposes, the fiscal consequences of these two transactions should be identical.

Comment

The VAT regulations contain no express stipulation concerning the taxation of a transfer of company assets to shareholders as a result of a liquidation. Consequently, this issue is still open to controversy. The tax authorities treat any transfer of liquidation assets as a free-of-charge delivery of goods, which is liable to VAT. This viewpoint is supported by the Ministry of Finance, which stated in its reply to a parliamentary query of May 28, 2013 (ref. no. SPS-023-18032/13) that in a situation where a taxpayer  is entitled – in whole or in part – to deduct input VAT, it is due on any transfer of goods which used to belong to the liquidated company to shareholders. This opinion of the tax authorities was recently endorsed by administrative courts (see, for example, the judgment of the WSA in Wrocław of July 25, 2013, case no. I SA/Wr 1013/13 or the judgment of the Supreme Administrative Court (NSA) of April 26, 2013, case no. I FSK 525/12), which had until recently treated the transfer of company assets as a result of a liquidation as a VAT-neutral transaction (see, for example, the judgment of the WSA in Warsaw of February 5, 2013, case no. III SA/Wa 2012/12 or the NSA judgment of December 1, 2011, case no. I FSK 300/11).

Consequently, any shareholders contemplating a liquidation should bear in mind the risk of having to pay VAT on the asset transfer involved or consider minimizing that risk by restructuring the assets of the company to be liquidated in such a manner as to ensure that the asset transfer is neutral for VAT purposes.