Poland vs “L S.A.”, March 2025, Supreme Administrative Court, Case No II FSK 401/23

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Category: Delineation - Substance over Form, Legal Ownership, Legality - Legitimacy - Constitutional, Non-Recognition and Recharacterisation, Royalty and License Payments, Transfer Pricing Methods | Tag: , , , , , , , , ,
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In 2013 L S.A. transferred its trademarks to a related party, L. TM sp. z oo, financing this transfer with a cash contribution in the amount of PLN 123,945.00. Then L S.A. paid license fees for the benefit of L. TM sp. z oo, which it reported as costs of obtaining revenues.

According to the tax authority, L S.A. had overestimated the costs of obtaining revenues in connection with including in the costs the license fees paid to L. TM sp. z o. o. concerning trademarks. The only function performed by L. TM sp. z o. o. was legal protection of trademarks. The tax authority issued an assessment of additional taxable income in the amount of PLN 14,524,158.50, being the difference between the value of PLN 34,559.19 of the remuneration due to L. TM sp. z oo for the services provided and the value of PLN 14,558,717.73 of the license fees due determined by related entities.

A complaint was filed by L S.A. with the Administrative Court which was dismissed as unfounded. L S.A. then filed an appeal with the Supreme administrative Court.

Judgment

The Supreme Administrative Court overturned both the ruling of the Administrative Court and the underlying assessment of the tax authority.

A critical issue in the appeal was whether the tax liability had expired due to the statute of limitations. The tax authority had claimed the limitation period was suspended because it had initiated criminal tax proceedings shortly before the limitation period ended. However, the Supreme Administrative Court ruled that the initiation of these proceedings was instrumental and served solely to suspend the limitation period without a genuine intention to conduct a criminal investigation. The Court found that the criminal proceedings were initiated too late, were not actively pursued, and appeared to have no substantial evidentiary basis. As a result, the suspension of the limitation period under Article 70 § 6(1) of the Tax Ordinance was deemed unlawful.

Due to this finding, the Court concluded that the tax liability had become time-barred. Accordingly, the tax authority’s decision assessing the tax and the court judgment upholding it were both annulled. The case does not need to be re-examined regarding the underlying transfer pricing issues, as the limitation period had already expired.

 

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Supplemental Guidance

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