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Poland: LLC transformation into limited partnership not tax advantaged arrangement

Poland: LLC transformation into limited partnership

The tax administration issued a “clearance opinion” letter regarding a proposed arrangement—a planned transformation of a limited liability company (LLC) operating within a capital group into a limited partnership, concluding that the arrangement would not have as its principal purpose obtaining a tax advantage.

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The LLC planned its transformation into a limited partnership, with the current sole shareholder of the LLC (also a company) becoming the limited partner. As a result, the LLC (a tax transparent entity) will lose its taxpayer status, and its income (or loss) will be attributed to its partners. Therefore, it will be possible to settle the limited partner's tax losses incurred in the previous tax years with the taxable income of the LLC—that could be viewed as resulting in a tax advantage within the meaning of the provisions of the tax law.

The Head of the National Revenue Administration concluded that the arrangement (transformation) did not meet the statutory criteria for tax avoidance. Despite the potential tax advantage of being able to offset the taxable income of the LLC with the limited partner’s tax losses, the tax administration concluded that the remaining conditions listed in Article 119a of the tax law are not met. In particular, the administration found that the arrangement is not being put into place for the main purpose (or one of the main purposes) of obtaining a tax advantage; the tax advantage does not conflict with the subject or purpose of applicable tax law or its provisions; and the manner of performing the transformation is not artificial.

Thus, the tax administration concluded that Article 119a does not apply to the tax advantage resulting from the transformation described in the taxpayer’s application.


Read an April 2020 report [PDF 266 KB] prepared by the KPMG member firm in Poland

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