Division

 
 

Legal succession

The Tax Ordinance provides for universal succession in the event of division of a legal person if the assets assumed as a result of the division (and in the case of a division by split-off, also the assets of the divided legal person) constitute an organised part of the enterprise. In such case, effective on the division date the acquirers or the legal persons formed as a result of the division enter into all of the rights and obligations provided under tax law of the divided legal person connected with the assets allocated to them in the division plan, including rights and obligations arising out of decisions issued under tax regulations.

If the assets acquired as a result of the division (or in the case of a division by split-off, also the assets of the divided legal person) do not constitute an organised part of the enterprise, the acquirers or the legal persons formed as a result of the division are jointly and severally liable with all of their assets for the tax arrears of the divided legal person, up to the net value of the assets acquired pursuant to the division plan. In addition, in the case of a division by split-off, such liability is limited to tax arrears arising through the date of the split-off.

An exception to the rule of universal succession in the case of a division is that the acquirer or newly formed company is not entitled to use the losses generated by the divided company.

Corporate income tax effects

As a rule, the division of capital companies with their registered office in Poland or elsewhere in the EU or EEA is tax-neutral for both the acquirer or newly formed company and for the divided company, and for the shareholders of the acquirer or newly formed company and of the divided company (so long as they do not receive additional consideration in cash), if the assets assumed as a result of the division (and in the case of a division by split-off, the assets assumed as a result of the division or the assets remaining in the company) constitute an organised part of the enterprise. Otherwise, income may arise on the part of the shareholders in the form of the excess in the value of the shares allocated in the acquirer or newly formed company over the costs of acquiring or taking up the shares in the divided company, but if certain conditions are met this income may be exempt from taxation.

In the case of a division, the acquirer or newly formed company obtains assets whose value may be higher than the par value of the shares allocated in exchange to shareholders of the divided company. Such excess in the value of the assets of the divided company received by the acquirer or newly formed company over the par value of the shares allocated to the shareholders of the divided company does not constitute income (except for a situation where the acquirer holds less than 10% of the share capital of the divided company), unless the division is not conducted for economically justifiable reasons but the only purpose or one of the main purposes of the transaction is to avoid taxation.

The process of division does not allow the acquirer or newly formed company to step up the basis of the acquired assets for tax purposes. In this respect, the rule is that the existing tax basis is carried forward, under the principle of continuation.

Indirect taxes (VAT, transaction tax)

As a rule, the division of a capital company is not subject to VAT, and is also neutral from the point of view of the tax on civil-law transactions.