The Supreme Administrative Court (NSA) found in its judgment of March 19, 2014 handed down in case no.I FSK 831/13 that the hand-over of assets of a liquidated company to a shareholder should be deemed a VAT- taxable delivery of goods, given that the goods being handed over are intended for purposes other than the business activities carried on by the liquidated company. What this means is that if the liquidated company was entitled to deduct the input VAT on the purchase of the goods being handed over to a shareholder as part of the liquidation process, the hand-over of these goods must be treated for the purposes of VAT Law as a delivery of goods against payment – regardless of whether the shareholder of the liquidated company is a natural or legal person, since it is only the actions of the VAT taxpayer, viz. the liquidated company, that matter in the considered circumstances. The NSA also found that the fact of the shareholder intending to use the assets received from the liquidated company for the purpose of carrying on taxable business is of no relevance in the situation.
This ruling is important for businesses contemplating liquidation of a company and intending to transfer the assets remaining in the liquidated company to their shareholders in in-kind, without first cashing them. The tax authorities consistently hold that unless the assets received by the shareholder as a result of liquidation of a subsidiary constitute an enterprise or an organized part of an enterprise, the hand-over of such assets is subject to VAT. This position, unfavorable to taxpayers, is recently being upheld by administrative courts. It is important to note that on the date of the judgment considered here, the NSA handed down as many as nine other rulings with identical interpretations. It must be kept in mind, however, that the transfer of an enterprise or an organized part of an enterprise is outside the scope of VAT, meaning that if a shareholder receives as a result of liquidation of a subsidiary an enterprise or an organized part of the enterprise of the liquidated company, the transaction will not be subject to VAT. It is therefore particularly worthwhile when liquidating a company and distributing the company’s remaining assets in kind to take a look at the structure of the assets to be handed over to shareholders. If the assets of the liquidated company are structured properly, their hand-over to the shareholders will not trigger VAT.