What was the case about?
The TUSE ruling concerned a Polish joint-stock company which received an asset contribution comprising, amongst other things, real estate. The consideration for the contribution was newly issued shares, valued at their issue price. The tax issue identified in the case concerned the VAT taxable amount for the contribution in kind. The company took the position that the taxable amount should not be the nominal value of the newly issued shares, but their issue value.
The taxable amount described above was included on the invoice documenting the contribution in kind, and the input VAT from the invoice was deducted.
This approach was challenged by the tax authority. In the authority’s view, whilst the right to deduct VAT was applicable, the VAT taxable amount on the invoice should have reflected the nominal value of the shares (a significantly lower amount). This position was also endorsed by the Provincial Administrative Court in Warsaw.
The judgment of the Provincial Administrative Court in Warsaw was appealed, and the case is pending before the Supreme Administrative Court. The latter referred the matter to the CJEU for a preliminary ruling: Should the payment received or to be received by the supplier in exchange for the supply of goods referred to in Article 73 of the Directive be understood as the nominal value of the shares acquired, or as the issue price, if the parties have agreed that the payment will constitute the issue price of the shares?
CJEU ruling contrary to the practice of Polish tax authorities
In its judgment of 8 May 2024 in Case C-241/23, the CJEU, endorsing the position of the Polish company, ruled that the taxable amount under Article 73 of the VAT Directive should be determined in accordance with the payment actually received, and if the parties have agreed that the payment will be the issue price of the shares, then it is precisely that value which should constitute the taxable amount.
The Court noted, however, that the Polish court may determine whether the terms of the transaction actually reflect the real market value and whether the transaction does not constitute an abuse of law. That said, based on the material submitted to the CJEU, none of the elements of the case description pointed to this.
It should also be noted that the CJEU ruling referred to above not only contradicts the tax authority’s position in this specific case, but also individual interpretations issued by the Director of the National Tax Information Service, e.g. the interpretation of 6 November 2023, ref. no.: 0112-KDIL1-1.4012.454.2023.2.JKU, or the judgments of administrative courts (e.g. the judgment of the Provincial Administrative Court in Rzeszów of 16 February 2021, ref. no. I SA/Rz 736/20).
What does this mean for taxpayers?
As regards the positive aspects of the judgment, it should certainly be noted that the TUSE judgment affords the parties to such transactions significant freedom in shaping their terms.
However, the judgment also has significant consequences for taxpayers who have already accounted for the contribution in kind in accordance with previous practice. The negative consequences of the TUSE judgment may include the tax authorities challenging the understated (because it was taken at nominal value) VAT taxable base of the contribution in kind, and thus the amount of VAT due shown. This risk is particularly significant for those taxpayers who have not confirmed the VAT implications of the contribution-in-kind through an individual interpretation (as they will not benefit from the protection afforded by an individual interpretation). It also remains to be seen how the Ministry of Finance and the tax authorities will respond to the CJEU ruling. Given the principle of taxpayers’ trust in public authorities as expressed in the Tax Ordinance, one would expect a rational approach from the tax authorities and that they would not hold liable entities which have conducted their accounts in accordance with current practice and in good faith as to its correctness.
Frequently asked questions
What is the VAT tax base for contributions in kind if the parties agreed that payment is the issue price of shares?
According to the CJEU judgment, the tax base is the issue price of shares if the parties expressly established that it constitutes payment for the contribution in kind. The Court indicated that it should reflect the remuneration actually received, not the nominal value. This approach is contrary to the previous practice of Polish tax authorities.
Does the CJEU judgment mean that tax authorities must accept the issue price as the tax base in every case?
Yes, provided that the parties actually agreed on such payment and the transaction does not serve to abuse the law. The Court noted that the Polish court may verify whether the transaction conditions reflect the actual commercial value. However, in the present case, no grounds indicating such abuse were found.
What are the negative consequences of the CJEU judgment for taxpayers who have already settled contributions in kind according to nominal value?
The tax authority may challenge the understated tax base and the declared amount of VAT due. This risk is particularly high for taxpayers who did not obtain protection through individual interpretation. They may be held liable for tax differences resulting from the new position.
Can taxpayers who settled contributions in kind in accordance with the previous practice count on protection from tax authorities?
A rational approach by the authorities should be expected, based on the principle of taxpayers’ trust in public authority. Entities settling in good faith should not be held liable for complying with the previously applicable practice. However, this situation depends on how the Ministry of Finance and tax authorities react to the ruling.
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I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.
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