Poland vs A. Sp. z o.o., March 2019, Administrative Court, Case No I SA/Rz 1178/18

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A. Sp. z o.o. was established to carry out an investment project consisting in construction of a shopping center. In order to raise funds, the company concluded a loan agreement. The loan agreement was guaranteed by shareholders and other related parties. By virtue of the guarantees, the guarantors became solitarily liable for the Applicant’s obligations. The guarantees were granted free of charge. A. Sp. z o.o. was not obliged to pay any remuneration or provide any other mutual benefit to the guarantors.

In connection with the above description, the following questions were asked:

(1) Will A. Sp. z o.o. be obliged to prepare transfer pricing documentation in connection with the gratuitous service received, and if so, both for the year in which the surety is granted to the Applicant or also for subsequent tax years during the term of the security?

(2) Will A. Sp. z o.o. be obliged to disclose the event related to the free-of-charge consideration received in a simplified CIT/TP report, both for the year in which the guarantee is granted and for subsequent tax years during which the guarantee is in effect.

In A. Sp. z o.o.’s opinion, the company was not obliged to prepare transfer pricing documentation in connection with the gratuitous service received. And if the tax authority’s decision was contrary to the Company’s position, documentation should be prepared only for the tax year in which the guarantees was entered.

The tax authorities disagreed with the company, and a complaint was filed by A. Sp. Z o.o. with the Administrative Court.

Judgement of the Administrative Court

The court dismsissed the appeal of A. Sp. z o.o. and sided with the tax authorities.

The essence of the dispute in this respect boils down to the understanding of the notion of transaction used in this provision to define the actions the performance of which is to result in the necessity to draw up tax documentation. The provisions of ustawa p.d.o.p. do not contain a legal definition of this notion, therefore, the basis for interpretation of its meaning must be a colloquial understanding of the word transaction. However, basing such an interpretation solely on lexical definitions is doomed to failure because both the interpreter himself, as well as the applicant, basing themselves on linguistic definitions contained in dictionaries, came to completely different conclusions from the point of view of interpretation. One of them concluded that a transaction is a legal act concluded in connection with a party’s business activity in the performance of which at least one payment is made (based on the Internet Dictionary of the Polish Language http://sjp.pl), while the applicant, relying on another dictionary https://sjp.pwn.pl), argued that the word transaction covers only an agreement for the purchase and sale of goods and services. Therefore, resolving the merits of the case based solely on dictionary concepts does not give sufficiently satisfactory results.
n such a situation one should refer to a purposeful interpretation, referring to the reasons for introducing this regulation, as well as to the goal the legislator intended to achieve through its introduction. In this respect, it should be pointed out that the provisions on the obligation to prepare tax documentation in the case of civil law transactions between related entities were introduced in order to ensure transparency of such activities, in particular to ensure that such activities are conducted on market principles. The purpose of introducing such a regulation convinces the court to accept as correct a broad definition of the word transaction. Such a definition ensures transparency of actions by related entities. There are no grounds for assuming that the legislator intended to achieve this only with respect to purchase and sale agreements, leaving the entire wide range of possible legal actions between related entities outside these regulations. Such an understanding of this provision is also an implementation of the guarantee function of the tax law, allowing related entities to obtain adequate protection in the event of disclosure of their actions. Therefore, in the court’s opinion, the interpreting authority did not violate the law by stating that the applicant’s position in this respect, in which it assumes that the notion of transaction means only and exclusively sale and purchase agreements, is incorrect.
In this respect, the court of first instance fully agrees with the view of the Supreme Administrative Court expressed in the judgment of 8 March 2016 in case II FSK 4000/13, which stated that on the grounds of Article 9a(1) and (2) of the Act, the term “transaction” is synonymous with the term “agreement”. (ONSAiWSA 2017/3/52).
In the same judgment, this Court considered as transactions within the meaning of Article 9a(1) of the P.C.P. making a contribution-in-kind to a capital company in the form of shares or stocks, the purchase (acquisition) of shares or taking up shares in increased share capital in exchange for a cash contribution.
Cash-pooling agreements were also recognised as agreements exhausting the notion of transaction indicated in Article 9(1) of the APS (e.g. judgment of the Supreme Administrative Court of 8 January 2019 II FSK 121/17) or taking up by a bank in exchange for a cash contribution of shares issued upon the establishment of a mortgage bank and subsequent increases in the share capital of a mortgage bank (judgment of the WSA in Gliwice of 25 April 2018 I SA/Gl 314/18).
Thus, the court jurisprudence in this respect adopts a broad understanding of the notion of transaction, not limiting it only to a sale-purchase agreement.
Taking into account all the elements indicated above, the court held that the authority did not infringe the law by assuming that the notion of transaction referred to in Article 9a(1) of the A.P.C. also includes a legal transaction such as the one described in the application, which is subject to the granting of a surety free of charge to the applicant under a loan agreement.
The interpreter’s position does not violate the law either, to the extent in which he stated that the obligation to prepare tax documentation exists both as for the year in which the security was provided and as for the years in which it will last. The position of the authority is supported in this respect by the content of the provision of Article 9a Section 2g of ustawa p.d.o.p.. This provision stipulates that the tax documentation concerning transactions or other events referred to in paragraph 1 point 1, which continue in the subsequent tax year, is subject to periodical review and update, at least once per tax year, before the lapse of the deadline for filing the tax return for the subsequent years, within the scope of the information contained therein. Therefore, the content of this provision implies a periodic review of the documentation (at least once a year), but also an obligation to update the documentation. While the duty to review concerns the tax authority, the duty to update, constituting the second part of the conjunction, is addressed to the entity obliged to submit tax documentation.
Since, as indicated above, the interpreter’s position as regards the obligation to file tax documentation was correct, his position as regards the obligation to update this documentation in subsequent years, in which the surety granted to the taxpayer will be in force, should also be deemed correct.

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