A Transactionally significant judgment on the redemption of shares
The combined efforts of MDDP’s Real Estate and Tax Litigation teams have successfully concluded proceedings regarding the redemption of shares, specifically concerning the abuse of law clause for one of our clients. In a recent judgment, the Voivodeship Administrative Court (WSA) in Białystok overturned an unfavourable decision issued by the tax authority and remitted the case for reconsideration. Subsequently, the tax authority itself admitted its error and discontinued the proceedings—an occurrence that is exceedingly rare.
What Was the Dispute About?
The case revolved around proceedings concerning the General Anti-Avoidance Rule (GAAR), which the tax authority applied to a share redemption. The tax authority took the position that the taxpayer’s shareholder should have opted for another way of distribution of profit instead and that income tax on the redemption should have been paid by the taxpayer (the shareholder).
During the proceedings, MDDP’s legal representatives submitted numerous documents demonstrating the economic rationale adopted by the management boards of both companies over nearly a decade.
In its ruling, the WSA in Białystok found the tax authority’s approach to be incorrect:
- Firstly, the Court agreed that it could not be assumed that the companies had acted with deliberate intent in carrying out the redemption of shares.
- Secondly, the Court upheld the argument presented by us that the tax authorities had insufficiently examined whether there were grounds for issuing a decision imposing liability on the taxpayer for the unpaid tax.
Upon reconsidering the case, the tax authority ultimately found that it could not definitively attribute fault to the taxpayer for the failure to withhold WHT. Consequently, it determined that there were no grounds to hold the company liable for the tax and discontinued the proceedings, recognising that the taxpayer could not be blamed for the failure to withhold the tax.
MDDP on WHT-related cases
It is worth emphasising that, given regulatory changes and the increasingly pro-fiscal approach of tax authorities, MDDP is handling a growing number of WHT-related cases. These include protective opinions, WHT refunds, and abuse of law clauses. This number of cases shows how important it is to analyse each transaction in terms of withholding tax obligations, to assist in dealing with authorities on withholding tax matters, and to individually assess the facts and source documentation in order to properly manage tax risk.
This recent success demonstrates that even in the most challenging cases, persistence can yield favourable outcomes for clients. We believe this case sets a positive precedent for future successes, and the long-awaited clarifications on WHT regulations will provide taxpayers with greater legal certainty in navigating the complexities of withholding tax.
In this matter, the client was successfully represented by Justyna Bauta-Szostak and Jakub Warnieło, with the support of Karolina Piętka.
More about withholding tax in Poland, how entrepreneurs must prepare to fulfil their obligations related to withholding tax in Poland, what types of payments are subject to withholding tax and how we can help in this regard >>
https://www.mddp.pl/withholding-tax-wht/
MDDP publications on withholding tax
General tax ruling regarding withholding tax matters – breakthrough or continuation of past practice? – part I – dividends
General tax rulings regarding withholding tax matters – breakthrough or continuation of past practice? – part II – interest
Departure from the look-through approach in withholding tax by the Polish tax authorities