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The tax authorities have blocked family tax optimization

Restructuring, whose main purpose was to obtain the right to depreciation from the revalued initial value of the inherited property, should be subject to a tax avoidance clause – the head of KAS said.

In his opinion, such activities are artificial and contradict the purpose of the provisions of the PIT Act. This in turn implies the obligation to refuse to issue an opinion protecting against the application of the clause.

The latest position of the head of KAS concerned the restructuring of assets taken over by natural persons. Until now, he rarely addressed questions about how heirs can profitably manage high-value property received. Such doubts are not rare at all. Heirs cannot establish a trust in Poland, which would allow for beneficial management of property on their behalf, so they decide on other solutions, e.g. establishing family companies.
– Family businesses and their owners have the full right to restructure to increase the efficiency of their business operations and minimize the associated risks – emphasizes Katarzyna Karpiuk, legal advisor at the law office Ożóg Tomczykowski.

However, as it turns out, the restructuring of family property can be considered by the tax authorities as tax optimization. As happened in the latest case.

There were three heirs who took over the property. They decided to abolish its joint ownership, thanks to which one of them without the obligation of additional payments or repayments became the only owner of the property, which he planned to use in the conducted business activity in the scope of renting commercial premises. Then, all the heirs formed a partnership (limited liability company limited partnership), and the owner of the property brought in an in-kind contribution of his enterprise (including real estate).

– The use of real estate as a sole proprietorship would lead to complications, even despite the existing institution of succession administrator. Establishing a limited partnership and bringing an enterprise to it, therefore, seems to be the right thing to do in terms of succession – comments Katarzyna Karpiuk.

He adds that the use of a limited liability company as a general partner of such an entity is a widely used business model that aims to limit the liability of other partners (natural persons) while using all the benefits of a partnership structure. The expert admits, however, that the entire operation may have raised tax suspicions.

– It is difficult to draw unequivocal conclusions, since we do not know the time horizon of the actions taken, but in fact they could lead to tax savings – says the expert.

This was the opinion of the head of KAS. He stated that one of the main objectives of the entire operation was to obtain a tax advantage for the partners. In this way they avoided the limitation provided for in art. 23 clause 1 point 45 lit. and the PIT Act, pursuant to which they could not include in the tax deductible expenses depreciation charges on the initial value of the property acquired free of charge. An in-kind contribution to a partnership is a form of sale of goods for consideration.

Thanks to the restructuring, the partners of a limited partnership could, in proportion to their share in its profit, make depreciation charges on the overstated (updated as at the date of the free cancellation of joint ownership) of the market value of the property. Undoubtedly, therefore, they would reduce their tax liability, and thus one of the main goals of their operation would be to achieve a tax advantage – the head of KAS said.

He added that the restructuring was also contrary to the object or purpose of tax regulations (Article 23 (1) (45) (a) of the PIT Act). Thanks to the activities carried out, each of the partners of the limited partnership, who had not previously paid inheritance and donation tax on the property received, could save on personal income tax by inflating tax deductible costs.

According to the head of KAS, the restructuring was also contrary to the purpose of other provisions, which mandate the continuation of the principles of valuation of assets contributed in kind to a partnership (Article 22g (14a) in conjunction with Article 22g (12) of the PIT Act) and the continuation of methods of depreciation of fixed assets (Article 22h (3a) in conjunction with Article 22h (3) of the PIT Act). These provisions were to exclude the possibility of overestimating the initial value of property, plant and equipment previously used in business activities carried out by a taxpayer making a contribution to a partnership – the head of KAS reminded.

He added that the fourth condition for applying the clause was also met, i.e. the heirs acted artificially only to save on tax. They could set up a limited partnership after receiving the inheritance or before the joint ownership of the property was abolished.

Remaining doubts – The decision of the head of KAS raises doubts, because the description of the facts does not unequivocally indicate that the heirs’ way of operation was artificial and there was no economic justification for the distribution of the inheritance asset before it was brought into a partnership – comments Przemysław Antas, legal adviser and tax advisor at ANTAS Tax & Legal.

According to the expert, it cannot be argued that the heirs should have brought the property to the limited partnership before the inheritance division was carried out. – The position of individual partners could have been completely different in such a scenario. I remind you that a limited partner participates in the company’s profit and loss in proportion to the actual contribution made. The situation in which the heirs divide the property before it is transferred to the family company that will manage the property may be justified by family and economic reasons, says Antas.

He adds that the head of KAS before issuing the final decision should ask the applicants to clarify any doubts pursuant to art. 119x paragraph 4 of the Tax Code.

Katarzyna Karpiuk, on the other hand, calls for the heirs to prepare detailed legal and economic justification of the planned activities before restructuring. – The complexity of succession processes is associated with the fact that often the tax consequences are a kind of “side effect” of key business decisions for the family – sums up the expert.

Refusal to issue a security opinion of 9 June 2020 (reference number DKP3.8011.17.2019) and information regarding the refusal to issue a security opinion from 24 June 2020 (No. 190058 / K).

Mariusz Szulc, 29/06/2020

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