As of 1 January 2017 we will see a change in the principles for determination of income from taking up shares in capital companies and a limited joint-stock partnership in exchange for an in-kind contribution. According to new regulations, the taxpayer’s revenue will be the market value of the contribution made. Changes will also apply to tax deductible expenses in the case of transfer of shares taken up in exchange for an in-kind contribution.

1 January 2017 will see the entry into force of changes regarding the principles for determination of income of taxpayers who will take up shares in capital companies or in a joint-stock partnership in exchange for an in-kind contribution. The change relates to the way in which revenue from taking up shares in exchange for an in-kind contribution as well as the way in which tax deductible expenses at the subsequent transfer of such shares are to be determined.

At the moment, revenue from taking up shares in exchange for an in-kind contribution is the nominal value of shares taken up in exchange for an in-kind contribution other than an enterprise or an organised part thereof. In other words, revenue on that account was determined at the nominal value of the shares, regardless of the value of the contribution made. So the taxpayer could freely shape the amount of revenue received by creating the so called share premium, namely the excess of the value of the contribution made over the nominal value of the shares. While the tax cost at the transfer of such shares is also their nominal value (share premium remained neutral from tax perspective).

As of 1 January 2017, revenue from taking up shares for an in-kind contribution will be determined as the value of the contribution specified in the articles of association of the company or other document of a similar nature. Should the value stated in the articles of association or other document of a similar nature differ from its market value or should no such value be indicated, the tax authority will have a right to assess its amount as the market value of the contribution subject matter on the date on which the contribution subject matter was transferred onto the company.

The value of revenue so determined represents tax cost at the transfer of shares taken up in exchange for an in-kind contribution, also when they are contributed in kind to another capital company or limited joint-stock partnership.

In the legal regime prevailing now, a dispute as to interpretation arose between taxpayers and tax authorities whether revenue in connection with share premium may be assessed when an in-kind contribution is made. Tax authorities claim that in the case of taxpayers who are legal persons, revenue from taking up shares in exchange for an in-kind contribution arises in the amount of the market value of the contribution subject matter, regardless of share premium specified in the articles of association. Administrative courts (including the Supreme Administrative Court) adjudicated in such matters not in a univocal way. New regulations resolve finally the issue of revenue amount in transactions where an in-kind contribution is made to capital companies or a joint stock-partnership.

Please note that as of 15 July 2016 the regulations on implementing the General Anti Avoidance Rule to the Polish tax system entered into force. Because this institution has been operating for a short period of time, we cannot exclude that taking up shares below the market value of an in-kind contribution even in the current legal regime will be treated by tax authorities as the achievement of a tax benefit, which in view of the rule may authorise tax authorities to assess income of taxpayers in the amount equal to the market value of the contribution subject matter.