Ruling description

On August 19, 2015, the Supreme Administrative Court (NSA) ruled in case ref. II FSK 1898/13 that a partner in a partnership established as a result of transformation of a corporation may include depreciation write-offs from fixed assets and intangible assets under tax deductible costs in their full value, regardless of the limitations applicable in this respect in a transformed corporation.


The ruling commented on should be met with approval. Pursuant to Art. 16 sec. 1 item 63 letter d) of the CIT Act, depreciation write-offs of the initial value of fixed assets and intangible assets acquired in the form of an in-kind contribution are not, among other things, deemed tax deductible costs in the part of their value that was not transferred to establish or increase the share capital of a corporation. Hence, this provision applies to depreciation write-offs on fixed assets acquired by a corporation in the form of an in-kind contribution. According to the general rule resulting from statutory acts on income tax, in the event of a change of legal form, the initial value of the fixed assets and intangible assets is determined at the amount of the initial value specified in the register (list) of the entity in its changed legal form. This rule applies accordingly to entities that do not have legal personality. Entities established as a result of a change of legal form make depreciation write-offs with consideration given to the existing amount of write-offs and continue the method of depreciation adopted by the entity in a changed legal form, either divided or merged.

Therefore, in the event of depreciation, succession is limited to continuation in terms of the determination of the initial value of a fixed asset or fixed assets and intangible assets and to the method of depreciation. However, no obligation results from the provisions of law to adopt the rules limiting the possibility of classifying depreciation write-offs under tax deductible costs, including in particular, the limitations resulting from Art. 16 sec. 1 item 63 of the CIT Act. In light of the above, once a corporation has been transformed into a partnership, the partners in the latter may classify the full value of depreciation writeoffs made on the initial value resulting from the register of the corporation and then adopted in the partnership as tax deductible costs.

Although the ruling commented on refers to an individual who, following the said transformation, has become a taxpayer in respect of a share in a partnership, the conclusions resulting from the decision by the NSA should also apply accordingly to a legal person that becomes a partner in a partnership in the manner referred to above.

One should hope that the NSA ruling commented on will contribute to a change in the stance taken on this issue by tax authorities, which is unfavorable to taxpayers.