Table of Contents:
- Is PCC applicable to the transformation of a partnership into another partnership?
- What will the Supreme Administrative Court decide?
Due to numerous tax changes, many companies have recently undergone restructuring, including the transformation of partnerships (e.g., general partnerships, limited partnerships) into other partnerships. This has raised questions about whether such transformations trigger the obligation to pay civil law transaction tax (PCC), and if so, in what amount. Soon, the Supreme Administrative Court (NSA), in an extended panel, will decide by resolution whether the obligation to settle PCC arises in such circumstances if the contributions to the partnership did not change during the transformation.
Is PCC applicable to the transformation of a partnership into another partnership?
Under the PCC Act, the transformation of a company is classified as an amendment to the company agreement if it results in an increase in the partnership’s assets or an increase in the share capital of the company. In the case of transforming one partnership into another, the exclusion mentioned in Article 2 point 6 letter b) of the PCC Act does not apply. This means that such a transformation is subject to PCC. The tax base is then the value of the contributions to the partnership formed as a result of the transformation (Article 6 paragraph 1 point 8 letter f of the PCC Act). The PCC rate for the company agreement is 0.5%.
The disputes between tax authorities and companies mainly concern the correct determination of the tax base when no additional contributions are made during the transformation, but the transforming partnership has funds accumulated in the reserve or surplus capital, which were not previously subject to PCC.
What will the Supreme Administrative Court decide?
According to the tax authorities, when determining the value of contributions made to the transformed partnership, the entire assets of the transforming partnership should be considered, including the values originally contributed to this partnership and the assets accumulated by the partnership during its activity. This often leads to significant tax payments. For instance, the Director of KIS, in an individual interpretation dated June 25, 2021, No. 0111-KDIB2-3.4014.140.2021.2.MD, indicated that the increase in assets referred to in Article 1 paragraph 3 point 3 of the PCC Act is the benefit resulting from the transformation itself, which means the value of the assets contributed to the partnership exceeding the value of the assets previously taxed with PCC, i.e., the contributions made to the partnership.
The extended panel of the Supreme Administrative Court will decide by resolution whether, in the case of the transformation of one partnership into another partnership, the civil law transaction tax must also be paid on the assets that have been transferred to the new entity. This resolution will be binding on other adjudicating panels.
