Recent months have seen Polish tax regulations regarding restructurings significantly amended and further changes are also expected.
1. Restrictive tax neutrality conditions for M&A transactions as of 1 January 2022
Based on the Council Directive 2009/133/EC, general mergers and acquisitions are supposed to be tax-neutral as long as, in particular, one of the primary purposes of the merger is not to avoid taxation and the transaction is made between EU or EEA entities.
As of 1 January 2022, the existing tax-neutrality rules have significantly changed in Poland. The legislator has introduced additional requirements. Failure to comply with them leads to an obligation to recognise revenue already at the time of the transaction. These additional requirements are in particular:
- obligation to continue the tax valuation of the assets acquired,
- limitation of neutrality to such transactions in which the shares have not previously been the subject of other M&A transaction (thus in practice, only “first restructuring” is tax-neutral).
The above amendment means that review and a careful approach are needed regarding restructurings in Poland.
2. Limitation of deductible debt financing costs with respect to the equity transactions
Also as of 1 January 2022, Polish regulations provide for exclusion from tax-deductible costs of debt financing expenses, if the financing is granted by the related entity and earmarked for “capital transactions”, in particular:
- purchase or acquisition of shares (stock),
- acquisition of all rights and obligations in a partnership without legal personality,
- payment of additional contributions,
- increase of share capital or
- purchase of own shares for redemption.
In the current legal framework, the exclusion from tax-deductible costs does not apply only if the financing is aimed at the acquisition of shares (stock) in the unrelated parties or the financing is granted by the related bank or similar institution domiciled in the EU or EEA.
In practice, the open nature of the catalogue of “capital transactions” may trigger challenges in the application of the new law.
3. Implementation of the Directive 2019/2121 and other changes
Finally, a number of amendments to the Polish Commercial Companies Code and other acts are planned as part of the draft that is currently being compiled to implement the provisions of Directive 2019/2121 of cross-border conversions, mergers and divisions.
Some of the more significant expected changes include introducing:
- new types of cross-border company reorganisation,
- domestic division by separation (not considered in the Polish law system so far),
- additional measures to protect the creditors of reorganised companies, incl. initiating proceedings against the company (in the jurisdiction of the company) within two years from the date of the cross-border operation,
- obligation to submit an application for a certificate of legality of a given reorganisation operation to the national court register together with a request for an opinion of the competent tax authority,
- right to obtain information and challenge the reorganisation operation by employees of companies.
The legislation process is in progress. The precise wording of the law and date of its implementation are still to be confirmed.
Read the WTS Global Mergers & Acquisitions Newsletter here.
