Table of Contents:
- What is a Simplified Merger?
- What are the Tax Implications of a Simplified Merger?
On September 15, 2023, amendments to the Commercial Companies Code (k.s.h.) came into effect, introducing changes to the rules governing reorganization processes – in particular, allowing for simplified mergers of sister companies, i.e., companies in which one shareholder directly or indirectly holds all shares or stocks. According to the new provisions, such mergers can be carried out without increasing the share capital of the acquiring company, i.e., without issuing shares or stocks. Unfortunately, after 8 months, companies are refraining from using the new k.s.h. provisions due to the concerning stance of the National Revenue Information Service.
What is a Simplified Merger?
The newly added provision, Article 515¹ §1 of the k.s.h., states that a merger can be carried out without granting shares or stocks in the acquiring company if one shareholder directly or indirectly owns all shares or stocks in the merging companies, or if the shareholders of the merging companies hold shares or stocks in the same proportion in all merging companies. This option can be chosen, for example, by entrepreneurs operating within a capital group to simplify the structure. In the case of several sister companies, the merger can reduce expenditures on management, administration, other personnel, and equipment while maintaining the business profile and necessary assets for its operation. A simplified merger allows for a faster reorganization process and simultaneously concrete savings in merger-related expenses.
What are the Tax Implications of a Simplified Merger?
As a rule, mergers are tax-neutral, and tax arises only when the market value of the acquired company’s assets received by the acquiring company exceeds the nominal value of shares (stocks) issued to the shareholders of the acquired company. It would seem that the legislator did not intend to introduce a new type of merger that would have different tax implications. However, tax regulations were not properly aligned with the new k.s.h. provisions, raising several concerns.
The Director of the National Revenue Information Service, in tax rulings issued in 2024 (e.g., on February 13, 2024, ref. 0111-KDIB1-1.4010.712.2023.2SG, and February 14, 2024, ref. 0111-KDIB1-1.4010.701.2023.2.AW), referred to Article 12(1)(8d) of the CIT Act, which boils down to the fact that the acquiring company may generate income equal to the surplus of the market value of the acquired company’s assets over the nominal value of shares or stocks issued by the acquiring company to the shareholders of the acquired company. Since in the case of a simplified merger of sister companies no new shares or stocks are issued – according to the Authority, in the case of a simplified merger of sister companies, the acquiring company will always generate income equal to the market value of the entire acquired assets. If, as a result of the simplified merger, no shares or stocks are issued (the nominal value is 0), the income of the acquiring company is the total value of the assets of the acquired companies.
This position of the Authority cannot be accepted. Firstly, as a result of such an interpretation, the provisions on simplified mergers will remain dead – companies will not choose a reorganization that entails significantly negative tax consequences (for example, if the market value of the acquired assets amounts to PLN 5,000,000, at a 19% CIT rate, the acquiring company would have to pay PLN 950,000 in tax).
However, the erroneous position of the National Revenue Information Service is also contradicted by the interpretation result. Article 12(1)(8d) of the CIT Act should not apply to a simplified merger at all. Since a simplified merger – by its legal nature – does not involve granting shares or stocks to the shareholder of the acquired company, it is also not possible to apply a provision that creates income based on the above events (granting shares or stocks). Decoding the legal norm resulting from the above provision, it must be stated that its hypothesis (covering the issuance of shares or stocks to a shareholder) will not materialize. Consequently, if the hypothesis of the legal norm is not fulfilled, it is not possible to apply its disposition creating income.
Additionally, it should be emphasized that the provisions of the CIT Act should be interpreted taking into account a teleological interpretation in light of Council Directive 2009/133/EC of October 19, 2009, which provides that restructurings, such as mergers, should maintain tax neutrality. Therefore, applying the Directive provisions on the tax neutrality of restructurings such as mergers, as well as the provisions of the CIT Act, which should be read in accordance with the Directive, income under Article 12(1)(8d) of the CIT Act should not arise.
In view of the above, it is expected that soon further, this time positive tax interpretations will be published, or alternatively, the Authority’s position will be corrected by administrative courts.
