Ruling description

The Provincial Administrative Court (WSA) in Warsaw issued a judgment on September 11, 2014 in case no. III SA/Wa 3206/13 in which it found that if a borrower repays a portion of amounts due from it under a credit facility agreement by transferring rights to trademarks to the creditor, the borrower should recognize taxable income. In this case the company argued that if the market value of rights to trademarks being transferred in repayment of a credit facility is equal to the nominal value of the repaid amount, the company will not have to report any taxable income. The competent tax authorities and the WSA in Warsaw disagreed with this position.


In practice, the issue considered here is controversial. As a rule, the tax authorities and administrative court subscribe to the view that if, subject to the creditor’s consent, the borrower renders a performance in a form other than originally agreed, such as by transferring specific assets to the creditor, the borrower ought to declare income as if it had sold these assets to the creditor. That said, administrative courts had ruled on occasion that there is no need for debtors to declare income in situations of this kind, but these were isolated instances, inconsistent with the prevailing trends in rulings.

The controversies over the issue considered here should disappear next year with the promulgation of the amended CIT Act due to come into force on January 1, 2015. The amended Act will contain detailed regulations setting out the amounts of income and costs and the dates when they arise for taxpayers making nonmonetary (in-kind) transfers to their business partners in repayment of their debts, as well as setting down rules for determining the value of the assets received by the other party which it may then classify as tax deductible costs if it transfers the assets so received against payment.