Distribution of Liquidation Assets In Kind – Taxation Still Raises Doubts
The CIT Act specifies that the performance of a non-cash benefit (e.g., the transfer of tangible assets) to settle a liability should be taxed in the same way as the disposal of those assets.
Historically, tax authorities applied this provision to company liquidations and the distribution of liquidation assets in kind. This resulted in additional taxation if the market value of the assets distributed exceeded their tax value. This interpretation was controversial and frequently challenged before the courts.
In response, the CIT Act was amended, and as of 2021, the distribution of liquidation assets was explicitly added as an example of a taxable settlement of liabilities through the performance of a non-cash benefit. This pro-fiscal amendment was intended to remove the previous ambiguities.
However, in a judgment issued by the Voivodeship Administrative Court in Kraków on 15 April 2025 (case no. I SA/Kr 143/25), the Court stated that the amended provision does not apply to every liquidation, but only to situations where the shareholders were initially supposed to receive cash, but ultimately received assets in kind instead. If, on the other hand, the company’s articles of association provided from the outset that the liquidation assets would be distributed in kind, such a distribution does not give rise to taxable income. The same position was taken by the Supreme Administrative Court in its ruling of 18 December 2024 (case no. II FSK 423/23).
As demonstrated, the taxation of in-kind liquidation distributions continues to raise uncertainties.
In the event of a company liquidation, we therefore encourage you to contact our experts, who can help determine the tax implications and identify the most optimal course of action.