Maciej Wilczkiewicz

Tax adviser (Poland)
Senior Associate
Phone: + 48 32 330 12 06

The exchange of shares is a transaction where a shareholder of a company makes an in-kind contribution in the form of his shares to another company, as a result of which the latter company (called "the acquiring company") acquires a majority of votes in the former (called "the acquired company") or increases the absolute majority of votes held so far. As a result of the share exchange, the shareholder of the acquired company receives the shares of the acquiring company.

When the shares of a company are taken in exchange for an in-kind contribution in the form of shares in another company, as a rule, the shareholder making the in-kind contribution earns a revenue. That revenue is the face value of the shares acquired in exchange for the contribution in kind. However, making an in-kind contribution in the form of shares in a capital company on the terms and conditions reserved for exchange of shares is a tax-neutral transaction since pursuant to Article 24(8a) of the (Polish) PIT Act and Article 12(4d) of the (Polish) CIT Act, the transaction does not bring about a revenue on the part of the shareholder. 

Regulations on the exchange of shares derive from the Community regulations so they have been in force in Poland since its accession to the European Union . 

Due to tax-related benefits, the exchange of shares is often used in company restructuring processes and as a tax optimisation mechanism. Therefore, the lawmakers have decided to introduce solutions that would curb that phenomenon. Pursuant to the directive (Article 15(1a) ), a Member State may refuse to apply the directive in whole or in part, or withdraw benefits arising therefrom if it founds that the principal objective or one of the principal objectives of the transactions referred to in Article 1 of the directive (merger, division, partial division, transfer of assets and exchange of shares) was tax evasion or tax avoidance. Such a presumption may occur if the transaction is not performed for valid commercial reasons, such as the restructuring or rationalisation of the activities of the companies participating in the transaction. So far, the Polish lawmakers have exercised the right exactly in relation to company mergers and divisions which are not tax-neutral if they are not performed for valid economic reasons but their principal objective (or one of the principal objectives) is tax evasion or tax avoidance.

From 1 January 2017, a similar regulation will apply also to the share exchange transaction. Following the regulations provided in the directive, the Polish lawmakers have decided to also introduce a presumption that if shares are exchanged without the underlying valid economic reasons, it is assumed that the principal or one of the principal objectives of the transaction is tax evasion or tax avoidance. 

The introduction of that presumption means that in order to challenge the tax neutrality it is enough that tax authorities prove the lack of valid economic reasons. Such a conclusion will be enough for the tax authorities to assume that the objective of the taxable person's transaction was to evade taxation. Then, in order to keep the tax neutrality of the transacted share exchange, the taxable person must prove otherwise. 

In order to avoid the risk related to the new regulation, share exchange transactions should be carried out by the end of 2016. 

Our attorneys-in-law offer legal advice in Poland. They are at your disposal in Rödl & Partner offices in: Gdansk, Gliwice, Cracow, Poznan, Warsaw, Wroclaw.

2.12.2016 r.