Mergers & Acquisitions
Last reviewed 21 Aug 2023
Financing
Financial assistance by the subsidiary
No particular restrictions with respect to loans or guarantees granted by the subsidiary to the parent company
Subordinate debt (mezzanine capital)
The use of subordinate debt is allowed.
Interest expenses for acquisition financing
Generally tax deductible, subject to interest barrier.
However, no deductibility when it comes to acquisitions within the group and for interest payments in case of use of 'debt-push-down' mechanism in restructuring.
Interest expense on subordinate debt
Generally deductible, subject to interest barrier.
EU interest barrier
An interest surplus (excess of tax-deductible interest expenses over taxable interest income of a tax year) is only deductible to the extent of either: (a) 30% of tax EBITDA or (b) PLN 3 million - depending on which is higher.
Squeeze-out options
Buy-out of minority shareholders (squeeze-out)
Possible where there is an interest of shareholders having at least 90% in the share capital of subsidiary company belonging to a group (if so, applicable to both joint stock companies and limited liability companies), even if minority shareholders dissent
Capital gains – corporations and partnerships
Sale of shares in a joint stock corporation
The gain of legal entities on the sale of shares in a joint stock company in general is taxable income (source of income: investment). For Polish holding companies possible tax exemption of gains from disposal of shares of controlled company to unrelated party in certain circumstances.
Sale of shares in a limited liability company
The gain of legal entities on the sale of shares in a limited liability company in general is taxable income (source of income: investment). For Polish holding companies possible tax exemption of gains from disposal of shares of controlled company to unrelated party in certain circumstances.
Sale of interest in a partnership
The gain on the sale of an ownership interest in partnership is normally taxable income either for limited or general partners.
International participation exemption
For Polish holding companies possible tax exemption of gains from disposal of shares of controlled company (Polish or foreign) to unrelated party in certain circumstances.
Sale of business
Definition
Sale of the business by individual sale of assets and liabilities (“asset deal”) is possible.
In particular special labor law regulations have to be observed if employment contracts are to be transferred.
Valuation
For the sale of individual assets, the acquisition cost principle is applicable. The total purchase price is allocated to individual assets and liabilities at fair value, the difference constitutes goodwill. Badwill is not allowed for tax purposes.
Goodwill
For tax purposes, goodwill may generally be amortized linearly for minimum 5 years.
Mergers and demergers
Types of mergers described by commercial law
Merger by acquisition, merger by formation of a new company, demergers.
Valuation
For financial accounting purposes
Valuation in financial accounting
Method 1 – share pooling method; assets and liabilities are recognized at carrying values, with difference possibly recognized as surplus on reorganization.
Method 2 – purchase method; assets and liabilities of the acquired company are recorded at fair value, the difference is recorded as goodwill; assets and liabilities of the acquiring company remain basically unchanged.
Goodwill amortization
Goodwill is subject to tax amortization only if it came out as a result of purchase / financial leasing of a business. Otherwise tax amortization is not possible.
Tax treatment of revaluation
Revaluation of assets and goodwill amortization applied with the Accounting Act are irrelevant for tax purposes.
Contributions (transfer of assets into the capital of a company)
Contributions in kind
In general, the contribution of assets is allowed. Provision of work or services as well as inalienable rights cannot be contributed.
Tax treatment
The exchange of individual assets against an interest in the company is treated like a purchase and sale transaction (at market value).
Specifically, transaction expenses (e.g. property transfer tax and registration fees) and possible VAT ramifications should be taken into account.
A tax-neutral contribution in kind is generally possible in the case of the contribution of businesses and commercialized intellectual properties.
Goodwill amortisation
Goodwill is subject to tax amortization only if it came out as a result of purchase / financial leasing of a business. Otherwise tax amortization is not possible.
