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Tax Haven End: Stockholders of Joint Stock Partnerships


In late August 2012 the Polish Ministry of Finance published a draft amendment of the Polish Income Tax Law. The aim of this amendment is to minimise tax optimisation possibilities. These have previously been allowed to exist under the current tax regime. In particular, the amendment focuses on the taxation of stockholders of joint stock partnerships (SKAs), in-kind settlement of liabilities (to include in-kind dividend and redemption proceeds), extension of restrictions regarding thin capitalisation towards indirect shareholders, as well as transfer pricing documentation obligations. Taxand Poland looks at these amendments in detail and the potential impact that these may have, particularly on the real estate sector.

Earlier this year, the Supreme Administrative Court made a beneficial ruling according to which, stockholders in SKAs would not be taxed until they received distributed dividends. This effectively allowed the stockholders to reinvest profits generated by SKA without tax obligation, until their actual distribution, which made such partnerships tax-efficient vehicles in Poland. It seems, however, that in light of the proposed amendments, structures based on SKAs will no longer be as tax-efficient because they will now be subject to income tax. This means that taxation will arise both at the level of the SKA as well as at the level of the partners of the SKA (as is the case of corporate entities). The Ministry of Finance efforts in sealing the Polish tax system are also reflected in the lack of complex transitional regulations in respect to SKAs. Moreover, the legislator has decided that a SKA will align its financial year to that of all other business, which was not the case previously, as of 1 January 2013. This means that even existing SKAs will not be entitled to benefit from the current tax regime, regardless of their financial / tax year.

Aside from this, there are other important tax amendments expected in 2013.

First of all, in-kind settlement of liability (including dividends and redemption proceeds) will result in taxable income of the company making the settlement (regardless of taxation of the entity receiving the payment). This mean that such operations will be treated similarly to regular sale transactions. So far, this issue has not been directly regulated in the Polish tax law. Nevertheless, the tax authorities have claimed that such in-kind payment results in taxation of the paying-out entity (although such standpoint has been questioned in majority of administrative courts' judgments).

The amendments also provide for the extension of thin capitalisation restrictions. Loans from shareholders who indirectly hold at least 25% of the voting rights in a borrowing company will also be covered by these provisions (to the extent that the shareholders who directly hold at least 25% were subjected to these regulations). This may significantly decrease the possibility for tax-efficient intragroup financing.

Another amendment relates to transfer pricing documentation. Namely, taxpayers will be obliged to prepare documentation in relation to:

  • Establishing partnerships.
  • Establishing contractual joint ventures.
  • Making settlements between a Polish tax resident and its permanent establishment located abroad.


Taxand's Take

These amendments to the Polish income tax law should be taken into account by all multinationals conducting business in Poland. It will largely impact those within the Real Estate industry who have used joint stock partnerships in their structures (predominantly in connection with closed-end investment funds, since such funds are exempt from income tax in Poland). Multinationals should consider their structure of intragroup financing in light of the new thin capitalisation rules.

It should be noted, however, that the final wording of the amendments is not known yet. Nevertheless, it can be assumed that the new regulations will effectively enter into force as of 1 January 2013, which means that companies should assess their tax position in Poland as soon as possible to prepare for the upcoming changes.

Your Taxand contact for further queries is:
?ukasz, B?czyk
T. +48 22 324 59 87

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