Poland: Recent tax developments related to debt for equity swaps, deductibility of team-building event costs

Supreme Administrative Court decisions

Debt for equity swaps, deductibility of team-building event costs

The KPMG member firm in Poland prepared a report that includes summaries of the following recent tax developments:
 

Clearance opinion on debt for equity swap

A clearance opinion (case file DKP3.8082.7.2022) on exchanging debt for equity was published on 24 October 2022. The goal of the transaction was to create share premium which would then be included in supplementary capital, which could be used to cover negative equity and losses incurred in prior years. Furthermore, the transaction was intended to improve the company’s debt to equity ratio. The tax authority found that even though the transaction resulted in a tax benefit, such benefit was not the primary purpose, or one of the primary purposes, of the transaction. Thus, the transaction was not treated as artificial or inconsistent with the tax law.
 

Corporate income tax consequences of debt for equity swap

The Supreme Administrative Court held (case file II FSK 537/20 dated 21 October 2022) that if the face value of new shares issued as a result of a debt for equity swap is lower than the shares’ market value, the issuer must recognize income equal to the difference.
 

“Non-competition” damages subject to lump-sum income tax

The Supreme Administrative Court held (case file II FSK 544/20 dated 21 October 2022) that damages awarded on the basis of “non-competition” provisions payable by a company in which the State Treasury (or local government unit) had (directly or indirectly) the majority of votes at the meeting of shareholders (understood as the votes granted under the company’s organizing provisions and not the votes cast at any particular shareholder meeting) were subject to lump-sum income tax under Article 30(1)(15) of the PIT Act.
 

Deductibility of team-building events with business associates

The Supreme Administrative Court held (case file II FSK 572/22 dated 19 October 2022) that costs incurred by a company in connection with a series of team-building events for employees and business associates were not deductible because the business associates were not employed by the company and provided services to the company as part of their business activities.
 

Read an October 2022 report prepared by the KPMG member firm in Poland

 

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