When a company is split, income will not always arise
The WSA in Gdańsk overturned an individual interpretation in which the Director of the National Fiscal Information System (hereafter: DKIS) questioned the tax neutrality of a division by spin-off for a shareholder of the company being divided (judgment no. I SA/Gd 802/23 of 13 February 2024). There is already a published justification for this judgment.
Having analysed the published justification, Marek Kończak and Patrycja Krzymińska of Thedy & Partners point out that in the case decided by the WSA, the company intended to make a division by separation of two businesses. The real estate business was to be spun off into a new company and the production business was to be continued by the company being divided. The applicant, who was a shareholder in the company being divided, raised doubts as to whether taxable income would arise on his part as a result of receiving shares in the new company as a result of the division. The applicant indicated that it had become a shareholder in the divided company as a result of the so-called share exchange.
According to DKIS, because the applicant became a shareholder of the company being divided as a result of the exchange of shares, one of the prerequisites for the tax neutrality of the division for the shareholder of the company being divided has not been met, resulting in income on the part of the applicant.
Procedural errors
In the aforementioned judgment, the WSA repealed the WSA’s interpretation and, in its written justification, stated that the WSA failed to analyse more broadly the provisions regarding the emergence of revenue on the part of the shareholder of the divided company in the event of a division by spin-off and, consequently, did not explain when these provisions would apply and did not address the position presented by the applicant. Consequently, the WSA revoked the interpretation on procedural grounds.
Despite the fact that the judgment is procedural in nature, it appears that the WSA upheld the position of the applicant that, on a combined interpretation of the provisions on the arising of income on the part of the shareholder of the company being divided, it follows that income on its part arises only in a situation where the assets taken over as a result of the division or the assets remaining in the company do not constitute OCP, while such income does not arise if the assets taken over as a result of the division or the assets remaining in the company constitute OCP.
Positive ruling
Irrespective of the assessment of the correctness of the individual arguments presented by the applicant and supported by the WSA, this is undoubtedly a judgment in the right direction, as it seeks to ensure compliance of national legislation with the provisions of EU law, according to which restructuring operations should be tax-neutral.
The judgment is not final. However, its becoming final, especially as a result of its upholding by the SAC, may have a significant impact on the direction of jurisprudence and the interpretation of the provisions on taxation of subsequent restructurings.