Acquisition of another entity does not remove the right to offset one’s own tax loss

In the case analysed by the court, a company involved in the production of trains indicated that it intended to take over two other entities in the group, which also operate in the railway industry. The scope of the core business activities actually carried out by the acquiring company and one of the acquired companies is the same. In contrast, the other of the acquired companies declared in the KRS that this is only one of several scopes of its activities. As a result of the acquisition, the business profile of the acquiring company would therefore expand. The acquiring company requested an individual interpretation regarding the possibility of settling its loss carryforwards after the merger.
– In this respect, it should be noted that the dispute concerned the limitation in Article 7(3)(7)(a) of the CIT Act. Pursuant to the provision introduced in 2021, a taxpayer may not deduct its own tax loss if it has taken over another entity or acquired an enterprise or an organised part thereof, as a result of which, inter alia, the subject of its actual core business activity has changed in whole or in part,” explains Aleksandra Kodłubaj.
According to the WSA in Gliwice, the mere extension of the business activity profile is not the same as its change. The verdict also emphasises that Art. 7(3)(7) of the CIT Act is intended to prevent aggressive tax optimisation and not to lead to the loss of the right to settle tax losses by entities making business-justified mergers or acquisitions.
– The ruling by the WSA in Gliwice is positive news in particular for taxpayers who, due to the high amount of unsettled losses from previous years, have been postponing restructuring measures for the future, emphasises Aleksandra Kodłubaj, a consultant at Thedy & Partners.