On 30 March 2020 Director of National Treasury Information issued an individual interpretation (ref. 0111-KDIB1-1.4010.121.2020.1.ŚS) on determining the existence of an obligation to transfer prices in a situation of redemption of own shares by the Company, previously purchased from a Shareholder without remuneration for the purpose of their redemption.
The applicant conducts business activity in the form of a limited liability company. Both the Company and the Shareholder are legal persons having their registered office and management board in the Republic of Poland. The Partners of the Company are two natural persons (holding 850 shares of a total value of 85 000.00 PLN) and a legal person – a limited liability company (holding 118 461 shares of a total value of 11 846 100.00 PLN).
The nominal value of the shares is PLN 100.00 per share. The share capital of the Company is: 11,931,100.00 PLN. The applicant has been recording losses since 2016. In order to cover its balance sheet losses, the Company plans to reduce its share capital by redemption of shares without remuneration, with the consent of the Shareholder, by way of acquisition of shares by the Company.
The shares would be sold free of charge for redemption pursuant to Article 199 § 1 and § 3 of the Act of 15 September 2000. The Code of Commercial Companies and Partnerships under the so-called procedure of voluntary redemption of shares without remuneration.
The applicant plans to redeem the shares of the Shareholder, being a limited liability company (legal person), who in 2016 took over the shares in the Company by making a non-cash contribution (in-kind contribution) to the Company in the form of an organised part of the enterprise.
As a result of the planned actions, the Company plans to redeem only a part of the shares held by the Shareholder in the Company, and therefore the Shareholder will continue to hold shares in the Company.
The Company intends to redeem 60,000 shares with a total value of PLN 6,000,000.00. The value of the redeemed shares would cover a significant part of the Company’s loss. The share capital would be reduced after the redemption of the shares acquired for this purpose.
Pursuant to Article 11k(5) of the Corporate Income Tax Act, the assessment of whether a controlled transaction is of homogeneous nature shall be taken into account:
- the uniformity of the controlled transaction in economic terms, and
- the comparability criteria set out in the provisions issued pursuant to Article 11j(1)(1), and
- the transfer pricing verification methods referred to in Article 11d(1) 3, and
- other material circumstances of the controlled transaction.
In the opinion of the tax organ, the redemption of shares, regardless of its character (voluntary or forced), is included in the notion of “transaction” and should be a subject of tax documentation, if the prerequisite for exceeding the transaction value according to art. 11k p. 2 of the Act on Income Tax from Legal Persons is fulfilled:
- 10 000 000 PLN in case of a commodity transaction
- PLN 10 000 000 in the case of a financial transaction
- PLN 2 000 000 in the case of a service transaction
- PLN 2,000,000 in the case of a transaction other than those specified in points 1 to 3
Thus, the presented position of the tax authority is different from that of the Applicant.
Author: Beata Rawa – Transfer Pricing Manager