SAC: there are no legal obstacles preventing a company in organisation from participating in a tax-neutral exchange of shares
On 22 July 2021, the Supreme Administrative Court issued rulings in cases no. II FSK 2416/20 and II FSK 2417/20, concerning exchange of shares in which a limited liability company in organisation takes part. NSA stated that there are no legal obstacles preventing a company in organization from participating in a tax-neutral exchange of shares. The NSA resolved the dispute mainly on the basis of the provisions of the Code of Commercial Companies and on the basis of an objective interpretation of tax regulations. In the NSA's view, relying solely on the linguistic interpretation - which the tax authorities and courts of first instance did - leads to contradictory conclusions with the objectives of Council Directive 2009/133/EC.
– The core of the dispute in the case at hand was whether a natural person may take advantage of the PIT exemption on account of an exchange of shares referred to in Article 24 Section 8a of the PIT Act in a situation where, at the initial stage of this exchange, a capital company in organisation participates. Unfortunately, so far the tax authorities and the courts, referring to the linguistic interpretation of the regulations and to the earlier NSA rulings, have stated that the provision of Article 24 par. 8a of the PIT Act is applicable only when the exchange from the very beginning involved already existing entities specified in the Act, and not a capital company in organisation. Tax authorities and courts based their standpoint, among others, on the fact that in Appendix no. 3 to the PIT Act and in Appendix I part A to the Council Directive 2009/133/EC, apart from the limited liability company and the joint stock company, there was no mention of the form of these companies in organisation, recalls Rafał Sikora, consultant at Thedy & Partners.
In its judgments, the Supreme Administrative Court (NSA) disagreed with the position of the tax authorities and stated, inter alia, that there is an identity of entities between a limited liability company in organization and a limited liability company and that there is a continuity principle in relations between them, which means that they cannot be treated as separate legal entities. Moreover, due to the fact that the form of a limited-liability company includes its initial form, i.e. a limited-liability company in organisation, the lack of the latter in Appendix 3 to the PIT Act and in Appendix I Part A to the Council Directive 2009/133/EC does not limit the neutrality of the exchange of shares with a limited-liability company in organisation. In the NSA’s opinion, the aim of the implementation of the Council Directive 2009/133/WE, whose expression is, among others, art. 24 section 8a of the PIT Act, was to ensure the neutrality of the exchange of shares, and not to create regulations limiting it.
– Judgments handed down by the Supreme Administrative Court are important because they confirm the importance of applying the purposeful and systemic interpretation when interpreting EU law and Polish tax regulations, e.g. in situations where Polish regulations, if interpreted literally, may yield results inconsistent with the objectives of EU regulations. Moreover, such cases – often involving multi-million tax liabilities – directly affect taxpayers, i.e. natural persons. Therefore, adopting the position presented by the tax authorities – inconsistent, among other things, with the aim of the Directive and with the provisions of the Code of Commercial Companies – would lead to the economic “annihilation” of these persons – points out Lesław Mazur, legal adviser, tax adviser, partner in Thedy & Partners.