Table of Contents:
- Is Article 176 of the Commercial Companies Code Safe?
- How Do Tax Authorities Evaluate Article 176 of the Commercial Companies Code?
Under Article 176 of the Commercial Companies Code, shareholders can receive remuneration for providing non-monetary services to a limited liability company, provided that these services are of a recurring nature. Additionally, the shareholder’s obligation should be specified in the company’s articles of association, particularly the type and scope of services. This method of compensation for shareholders offers an interesting alternative to the remuneration paid to board members for their duties based on a resolution of appointment, as unlike the latter, remuneration paid under Article 176 of the Commercial Companies Code is not subject to health insurance contributions. However, we have received reports that the Head of the National Revenue Administration is increasingly overturning previously issued favorable individual interpretations regarding the payment of remuneration to shareholders for performing recurring non-monetary services for a limited liability company.
Is Article 176 of the Commercial Companies Code Safe?
The practice of applying Article 176 of the Commercial Companies Code has not yet been firmly established, and there is no certainty about how authorities will assess the performance of recurring non-monetary services. It is crucial to clearly distinguish between the duties of a shareholder and a board member – these roles must not overlap. Special attention should also be paid to separating the scope of duties, with a focus on functions such as control or supervision. Such services must be intangible, meaning they can take the form of consulting or accounting services, for example. The services must be performed on a recurring basis, such as every two weeks, once a quarter, or periodically on selected days.
How Do Tax Authorities Evaluate Article 176 of the Commercial Companies Code?
The Head of the National Revenue Administration, in some cases, refuses to issue tax interpretations regarding the imposition of an obligation on shareholders to perform recurring non-monetary services and the payment of remuneration in this manner. According to the Head of the NRA, the use of this institution raises a reasonable suspicion that it is connected with tax avoidance and artificial actions. Performing recurring non-monetary services for a limited liability company by providing the company with services essential to its operations may potentially be inconsistent with commercial and civil law, and shareholders gain a tax benefit compared to the payment of the company’s profit in the form of dividends.
In such cases, the Head of the NRA may refuse to issue an individual interpretation based on the following provisions of Article 14b of the Tax Ordinance:
§ 5b. A decision may be issued to refuse to provide an individual interpretation concerning those elements of the actual state of affairs or future event where there is a reasonable suspicion that they may:
- constitute an activity or an element of an activity as specified in Article 119a § 1; or
- be the subject of a decision issued with the application of measures limiting contractual benefits; or
- constitute an abuse of law, as referred to in Article 5(5) of the Act of 11 March 2004 on the Tax on Goods and Services.
We therefore emphasize that, depending on the scope of services described in the company’s articles of association and their frequency, tax authorities may consider that the introduction of these provisions is artificial and aimed solely at obtaining a tax benefit.
