Poland: Resolution Of The Supreme Administrative Court On The Corporate Income Tax Effects Of A Change Of Party To A Leasing Agreement With Respect To Agreements Made By 31 December 2012 Soon To Be Expected

Description

On 10 February 2016 the Supreme Administrative Court (NSA) provided a panel of 7 judges with a legal issue raising serious doubts to be settled (case no.: II FSK 3362/13): In light of Art. 17a points 1 and 2 of the CIT Law in the wording effective before 1 January 2013, does a change of a party to a leasing agreement made during the base term of the agreement, with other contractual parameters unaffected, lead to the necessity of re-assessing the terms and conditions of the leasing agreement in terms of their compliance with the criteria listed in Art. 17b sec. 1 of the Law, or is this change unimportant for the classification of the legal relationship, and in consequence – of the tax results of the original agreement.

Comment

Provisions concerning the taxation of an object of leasing allow the lessor (the financing party) to sell the lease object to the lessee for a price below the market value after the lapse of a so-called base lease term (specified in detail in the regulations).

Since 1 January 2013 the CIT Law has envisaged that a change of party or parties to a leasing agreement, with other contractual parameters unaffected, does not make the lease term re-run from the beginning. Therefore, if a new party to a leasing agreement continues its predecessor's agreement, it will take advantage of the lapse of time – also if its predecessor was a party to the agreement – allowing for the sale of a lease object for a price below the market value (in the case of financial leasing) or below the hypothetical net value (in the case of operational leasing).

Until the end of 2012 there were no specific regulations in this respect, which led to practical controversies, especially bearing in mind that pursuant to transitional regulations, a provision explicitly governing the effects of a change of a party to a leasing agreement is applicable to leasing agreements made on or after 1 January 2013. In the judicial practice two contradictory standpoints have appeared in recent years with respect to leasing agreements concluded before 1 January 2013, i.e. (i) after the change of a party to an agreement the lease term starts running from the beginning, and if the parties do not comply with the above, a tax authority is authorized to determine income from the sale of a lease object in accordance with market prices, (ii) the change of a party to a leasing agreement only implies the continuation of the agreement.

The extended panel of judges shall decide which of the above interpretations is correct.

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