Dear All,
please be informed that the most recent version of the tax amendments awaits now only the President’s signature. Hence, it is quite certain now that the new rules will enter into force in a shape there are drafted.
One of the change that can bring negative effects to the investor is change of the article referring taxation of contributions. Namely, by deletion of the words „in-kind contributions other than in a form of an enterprise or an organized part thereof”, the legislator, intentionally or by omission, may introduce taxation of cash contributions to the company, which so far have not been taxed.
New regulation after this deletion will state that the amount of the contribution as determined in Articles of Association or in a document of a similar nature (however not lower that the market value of contribution) will be treated as a taxable revenue.
The other open question is whether and when the taxpayers will be allowed to recognize therewith related tax-deductible costs. Provisions are quite vague in this respect, which may lead to two different conclusions:
- tax- deductible costs will be recognized at the disposal of shares which means that the cash contributions will be taxed at once when contributed,
- tax-deductible costs will be recognized at the cash contribution date, so in fact the income will be nil; however, issue will reappear at the disposal of shares, as the tax authorities may claim that one cannot recognize the same tax-deductible costs twice. In other words, such cash contribution will be taxed as at the date of share disposal.
As soon as the interpretation practice is there, another conclusions may appear.
The other point is that such kind of revenues will be rather classified as revenues from other sources and not as capital gains, whereas in-kind contributions will be classified as capital gains. This means that tax result derived out of in-kind and cash contributions will not be compensated, as will be classified to different sources of income.
Given the above ambiguity, in case in the nearest future you plan to increase the equity of SPVs by means of cash contribution, we would recommend to perform such actions still this year. Please feel free to contact us for any further doubts regarding the above mentioned provisions and to share internally, if required.
