Tax Practice wins dispute with tax authorities over sham transactions

The Tax Practice has successfully represented a client in a dispute before the tax authorities over tax regulations on sham legal transactions being applied as if they were an anti-tax avoidance clause. The corporate income tax arrears amounted to over PLN 4 million. 

The case was handled on DZP's behalf by Tax Practice experts: Artur Nowak, Co-Managing Partner of the Practice, Tomasz Leszczewski, Senior Tax Manager, and Maria Januszewska, Tax Consultant.

The first instance tax authority found that the in-kind contribution of a trademark and the subsequent redemption of shares without remuneration were sham transactions and assessed income for the company that received the trademark of the market value of the trademark, deeming the donation of the trademark a transaction disguised as an in-kind contribution and share redemption. The authority considered the aim of the transactions to be tax optimisation.

As a result of an appeal against the first instance authority's decision drawn up by our Tax Practice experts, the director of the National Revenue Administration overturned the decision issued by the head of the tax office and discontinued the proceedings. This decision ends a protracted dispute with the tax administration authorities right at the administrative stage, without the taxpayer having to initiate legal proceedings, which has rarely happened in recent years.

By overturning the first instance decision, the tax authority upheld the arguments put forward in the appeal by our Tax Practice experts regarding the guidelines for applying the provisions on sham transactions (Article 199a § 2 of the Tax Code), inter alia, admitting that sham transactions do not constitute an anti-avoidance clause and cannot be applied to corporate resolutions.

The decision is extremely important not only for the client, but also for other taxpayers due to the evident trend among the tax authorities to apply the provisions on sham legal transactions as if they were an anti-tax avoidance clause, allowing arbitrary challenges to the effectiveness of selected legal transactions, in isolation from the legal framework of this institution and without the guarantees for the taxpayer that are provided by the application of such clause. It shows that this unfavourable practice, following the recent court judgments, is beginning to change in favour of taxpayers.