Ruling description

The Provincial Administrative Court (WSA) in Wrocław found in a judgment of September 24, 2014 issued in case no. II FSK 1799/12 — contrary to what fiscal authorities sometimes hold — that if a shareholder transfers shares created to increase the company’s share capital and paid for out of the company’s spare capital (or shares whose nominal value was increased in the same fashion), it may not classify the amounts paid out of the spare capital to increase the share capital in this way as a tax-deductible cost.

The case involved a Polish corporation holding shares in a Swiss corporation which proposed to increase its share capital using its spare capital resources. The spare capital was comprised of share premiums generated by contributions previously made to the Swiss company by its Polish shareholder. The share capital was to be increased either by creating new shares or increasing the nominal value of existing shares. The Polish company requested a tax ruling to confirm that the spare capital amounts spent to increase the share capital of the Swiss company by creating new shares or increasing the nominal value of existing shares will be classifiable as a tax-deductible cost for the Polish company if it then transfers the said shares.

This interpretation was rejected by the Director of the Tax Chamber in Poznań issuing the requested tax ruling and later by the WSA in Wrocław which heard the company’s appeal against this tax ruling. Like the tax authority, the Court argued that the only expenditures that may be classified as tax-deductible costs are those that may be deemed definitive performances, permanently depleting the taxpayer’s assets, while transfers of amounts between a company’s various capitals do not fit this description. The Court also emphasized that expenditures of spare capital amounts are transactions relating to assets of the company rather than to assets of the shareholder transferring its shares in the company. It is for this reason too that transfers of amounts from the company’s spare capital to the company’s share capital cannot be deemed tax-deductible costs for the said shareholder. The Court held, further, that it does not matter where the spare capital amounts used to increase the company’s share capital originally came from – also, as was the case in the circumstances considered here, when the money came from share premiums generated by contributions previously made to the company by a shareholder.


Regulations currently in force provide that the taxdeductible cost in case of the sale of shares is equal to the amount spent to purchase or acquire these shares. These regulations have for years now bred controversies, such as over restrictive interpretations favored by some tax authorities and courts whereby the “amounts spent” referred to in these regulations are only those amounts or performances that were actually spent/rendered by the shareholder. This interpretation prevents the classification of diverse items of property used for acquisition of shares by a shareholder as tax-deductible costs in the case of a variety of restructuring exercises despite these having, from the business point of view, a definite impact on the value and structure of the shareholder’s assets. For example, the value of receivables contributed to the company by the shareholder to pay for the share capital increase is not considered a tax-deductible cost since, according to the interpretation, the value of these receivables is not deemed an “amount spent” (i.e. expenditure), although there can be no doubt that the shareholder gives the receivable away, thus depriving itself of the ability to recover the amounts owed to it. The judgment at issue reiterates this restrictive interpretation of the tax regulations governing the taxation of share transfers.

Nevertheless, the tax authorities are not always consistent in applying this disadvantageous interpretation. In particular, some of most recent tax rulings issued by tax authorities allow the spare capital amount generated by share premiums when a shareholder makes a monetary contribution to an increase in the share capital of its company to be treated as a tax-deductible cost when the shareholder then sells its shares. This is the position taken, for example, by the Director of the Tax Chamber in Poznań in the tax rulings issued on March 26, 2014 (ref. no. ILPB3/423-619/13-5/PR) and October 24, 2013 (ref. no. ILPB3/423-352/13-2/PR). In this situation, taxpayers planning to make monetary contributions generating share premiums or serving to increase their companies’ share capital using spare capital resources ought to consider applying for tax rulings to clarify the issue of tax-deductible costs relating to the shares they hold, especially if they are also planning to later sell them.

Given the different positions being taken by the various tax authorities, if the tax ruling application is properly structured, the chances for a positive ruling eliminating the tax risk described here remain considerable.