The exchange of shares does not constitute a fiduciary transfer of shares

We quote below a fragment of a decision on discontinuation of the PIT proceedings for 2015, which was issued by the head of the customs and tax office in the case of one of our clients. For a long time, the tax authority considered the share exchange transaction as only apparent, claiming at the same time that the actual intention of parties was a fiduciary transfer of shares. Consequently, the income from the sale of the shares contributed in-kind should have been recognized by the contributing entity, acting in the capacity of the entrusting entity.

“(…) it cannot be reasonably argued that legal relations have been established between the Party and the Q Company, particularly characteristic of the third of the above-mentioned necessary elements of the trust agreement. In this case, the element in the form of the trustee's obligation to transfer back the ownership of the goods (rights) assigned to the entrusting entity is missing.

In the case in question, there is no clear evidence that the Q Company obliged itself to act this way (namely to trasnfer back the goods/rights) – it could only be presumed from a series of consecutive events. However, even assuming that the above-mentioned activities (assessed jointly) were only aimed at achieving the intended fiscal effect, there is no basis to conclude that the act of transferring the shares was apparent. (…)

Therefore, the evidence collected in the case, especially in the light of the presented court judgments, does not allow concluding that the Company share transfer agreement was an apparent agreement. In view of the foregoing, it should be stated that it is not possible to apply Article 199a § 2 of the Tax Ordinance in this case."

The customs and fiscal audits as well as tax proceedings in this case lasted almost 4 years. During this time, the viewpoint of the office head regarding the assessment of tax consequences of the activities carried out changed as many as three times!

The success gives two reasons to celebrate – apart from the favorable decision, we managed to convince the tax authority to change the originally adopted position, without the need to involve the administrative court.

The received decision confirms our thoughts indicated in the previous publication [https://gww.pl/en/news_/niekorzystny-wynik-kontroli-podatkowej-nie-zawsze-/]:

• in disputes with tax/customs authorities, it is worth being consistent in presenting arguments to support correctness of tax settlements. In the analyzed case, the entire instance path of the proceedings has been exhausted – from the customs and fiscal audit, through the decision of the 2nd instance authority revoking the decision of the 1st instance authority, up to the 1st instance authority's decision to discontinue the proceedings;
• audit report/result unfavorable for the taxpayer or even a decision in the 1st instance authority does not automatically mean that the authority has issued a final tax assessment decision;
• in the legal status existing before 15 July 2016, the Polish legal system lacked regulations that would allow tax authorities to question a properly conducted tax optimization.

Lawyers from the income tax team: Jacek Olczyk and Mariusz Tkaczyk, GWW partner, were in charge of the case.