DZP has represented clients from the light industry in a dispute with the tax authorities. The dispute concerned the tax consequences of restructuring activities carried out in the first half of 2016 related to the sale of shares in a capital company by its shareholders. The total amount of the shareholders' tax arrears was almost PLN 10.5 million (excluding interest).

Our clients, who are shareholders in a capital company, carried out a business restructuring in several stages, which included an exchange of shares between domestic entities. All the elements of the restructuring were implemented before 15 July 2016, when the anti-tax avoidance rules (GAAR) came into effect.

Thanks to the measures taken by DZP, the tax authority twice overturned its own first-instance decisions, the second time discontinuing the proceedings in the case. The authority upheld the allegations raised in the appeal and their grounds in full. It thus confirmed that the transfer pricing regulations in force on the transaction date did not allow its tax consequences to be challenged, as they could not be applied as a so-called narrow anti-avoidance clause. The decision is final.

The client was supported throughout the case by Joanna Wierzejska and Artur Nowak, Co-managing Tax Practice Partners, Paweł Suchocki, Senior Tax Manager, and Adrian Gurec, Tax Manager. 

Details of the case:

During the proceedings, the tax authority tried to challenge the restructuring using several different tools:

• first, as a result of the customs and tax inspection, invoking the general tax proceedings principles of objective truth and free assessment of evidence under Article 122, Article 187 § 1 and Article 191 of the Tax Code, it found that the tax office was entitled to ignore the tax consequences of the restructuring measures implemented by the taxpayer (under the so-called economic interpretation);
• then, in the first assessment decision delivered at the end of 2020, invoking judgments of the Court of Justice of the European Union of 26 February 2019 in case nos. C-116/16, C-115/16, C-117/16, C-118/16, C-119/16 and C- 299/16 delivered in Danish cases, the authority took the position that, based on the general principle of the prohibition of abuse of Union law, it was entitled to challenge the neutrality of an exchange of shares between the domestic companies in which the taxpayer was a shareholder;
• finally, in a second assessment decision delivered at the end of 2021, the authority invoked provisions on transfer pricing and transactions between related parties. The authority took the position that the share exchange transaction carried out by the taxpayer differed from the terms that would have been agreed between unrelated parties and for tax purposes assumed that the sale of the shares by the shareholders would have been the appropriate "arm's length" transaction.