Tax-related Consequences of Liquidation of a Limited Liability Company - Positive Verdict of the Voivodship Administrative Court

2017-03-15

In agreement with JP Weber's accusations, Wrocław's Voivodship Administrative Court has fully revoked an interpretation with respect to tax-related consequences of liquidation of a limited liability company. The decision may be of considerable importance in analogous situations involving identification of tax-related consequences for liquidation of shares in a company assumed before in return for an in-kind contribution, also including shares in a different legal person.

The Firm put forward a proposal with regard to the case in question to issue an individual interpretation of the lax law on the method of establishing what part of the assets received by a Partner (being a limited liability company) in relation to liquidation of a legal person is not included in its income. What was significant to the case and crucial to the dispute with the authority that issued the interpretation was the circumstance consisting in shares in the legal person under liquidation having been assumed by this Partner in return for an in-kind contribution in the form of shares in another company, which met the conditions necessary for it to be acknowledged as an exchange of shares neutral in terms of taxation.

JP Weber indicated that, in principle, pursuant to the provisions of the CIT law the value of assets received as a result of liquidation of a legal person constitutes income of the Partner - a legal person, arising from legal persons' share in profits. At the same time, it was indicated that the tax regulations directly prevent allowing for "quasi tax-related" costs when establishing income from liquidation of a subsidiary, as pursuant to the provisions of the law, income does not include the value of assets received in relation to liquidation of a legal person or company - in the part constituting a cost of acquisition or assumption of shares in this company or shares in this legal person's profits. JP Weber presented a concept according to which also in the event where the shares in the entity under liquidation are assumed in return for an in-kind contribution in the form of shares in another company, this cost will be the nominal value of shares assumed in return for this contribution. In the course of the proceedings, it was emphasised that making a contribution in the form of shares meets the conditions necessary to deem it to be the so-called exchange of shares (neutral from the standpoint of legal persons' income tax) and does not influence the subsequent rules of taxation on the part of the Partner to the assets under liquidation.

The authority issuing the interpretation did not agree with this standpoint and voiced an opinion according to which, admittedly, in this exceptional case the Partner will be entitled to acknowledging a quasi-cost but at the "historical" value, i.e. one considerably lower than the nominal value of the currently assumed shares. Importantly, the tax authority did now put forward any legal regulations proving this position.

In its decision of February 9 2017, the Voivodship Administrative court in Wrocław confirmed the rightness of JP Weber's client with respect to the tax-related consequences of liquidation of a limited liability company.The court's decision may be of considerable importance to analogous situations involving identification of tax-related consequences for liquidation of shares in a company assumed before in return for an in-kind contribution, also including shares in a different legal person.

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