Stanisław Gordziałkowski and Sławomir Łuczak from SK&S’ tax team, representing a client in proceedings before administrative courts, obtained a favorable judgment from the Supreme Administrative Court concerning the taxation of transactions involving the repayment of a loan by way of a transfer of rights to trademarks (datio in solutum).
In the case in question, a Polish limited liability company had high cash liabilities vis-à-vis its foreign shareholder resulting from granted loans. In 2014, the Polish limited liability company decided to pay off its loan obligations by way of a transfer of rights to trademarks to the foreign shareholder as part of a so-called datio in solutum transaction. In the company’s view, such a transaction should not have led to a levy of income tax as it did not result in a benefit for the company (the reduction in liabilities also resulted in a reduction of the company’s assets), and moreover in 2013 under the laws in force, there were no special provisions specifying such revenue.
However, the tax authorities took the view that economically, the transaction resulted in a disposal of trademarks against payment, and thus resulted in tax revenue equal to the repaid loan liabilities. The Voivodship Administrative Court in Warsaw (“VAC”) dismissed the company’s complaint and agreed with the position taken by the tax authorities.
However, in its judgment of 3 February 2017 (case ref. II FSK 4020/14), the Supreme Administrative Court (“SAC”) set aside the negative judgment of the VAC and, under Art. 188 of the Law on proceedings before administrative courts, ruled on the merits of the case, confirming that the company’s position was correct. The SAC stated in particular that a transaction involving substitute performance (datio in solutum) cannot be divided into two separate transactions, i.e. a transaction involving a disposal of trademarks against payment, and a setting off of the sale price against the loan liability of the seller (company). The SAC also emphasized that under the laws in force at the time of the case (i.e. before 2015), there were no special provisions which provided for taxable revenue for a debtor which repaid a cash obligation by way of effecting a substitute material performance.