Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
Emperia Holding SA—operator of Stokrotka, one of Poland’s largest retail chains—said it will appeal an assessment from the Polish tax authority for payment of 142.5 million zloty ($35.4 million) in back taxes.
The Jan. 31 multimillion-dollar tax assessment against Emperia, listed on the Warsaw Stock Exchange, also includes payment of 52.4 million zloty in interest in relation to a 2011 sale of its wholesale business to a competitor.
In a statement, Emperia said it intends to appeal the matter—it has 30 days to do this.
Should the first-level decision be upheld by the Tax Chamber in Warsaw, Emperia is likely to go to court, although it will have to pay the back taxes and interest first, according to local tax practitioners.
The tax assessment against Emperia is seen as evidence of the Polish tax authority’s willingness to probe deeply into the past to recover tax lost to what they regard as aggressive planning schemes.
“This case illustrates that the tax authorities are presenting a more strict approach, and as it was announced by the ministry of finance last year” they are focusing “on fighting with VAT fraud and aggressive tax planning involving corporate income tax and transfer pricing,” Marcin Matyka, a co-chair of the Tax & Financial Services Committee of the American Chamber of Commerce in Poland, told Bloomberg BNA in a Feb. 1 telephone interview. “This case illustrates that what was announced they are nowadays trying to implement.”
The case also means the authorities are unlikely to stop at Emperia, Maria Kukawska, a Warsaw-based tax adviser and partner at Stone & Feather Tax Advisory, told Bloomberg BNA in a Feb. 1 e-mail.
“Tax authorities are determined to look for such cases,” she wrote. “It is very likely that similar cases will be investigated in the future. Emperia claims they have a tax ruling which covers them. The authorities say tax rulings are null and void if tax planning comes into question, therefore nobody can feel safe with their rulings.”
And as the statutory period of limitation for corporate income tax cases is five years, cases going back to 2011 and 2012 are likely to be inspected, according to Kukawska.
“Anybody with a similar case is a likely target for tax inspection, especially if significant amounts were involved,” she added.
The Emperia matter involved the sale of its wholesale business to Eurocash Group, a competitor, via a special purpose vehicle, a limited liability company called P1.
According to Emperia, the sale via P1 was arranged because Emperia was threatened by a hostile takeover at the time, and the transfer of its wholesale business to P1 limited the threat to just P1.
But that is not the whole purpose P1 served, the tax authorities believe, as P1’s existence also allowed Emperia to conduct the entire transaction in a tax-neutral way.
According to sources familiar with the case, the contribution of Emperia’s wholesale assets to P1 was a share-for-share transaction, which was tax neutral.
There was little or no tax paid on the sale of assets from P1 to Eurocash because P1 was able to offset its taxable revenue with the nominal value of shares issued to Emperia. The nominal value of the shares was roughly equal to the shares’ market value.
And proceeds from the sale were distributed back to Emperia tax-free through a redemption of shares that was triggered by the sale of P1’s assets to Eurocash.
The tax authorities argue that the redemption of shares was voluntary and therefore should have been taxed, while Emperia says the redemption of shares was mandatory and therefore without tax consequences.
But in the absence of a general anti-avoidance rule at the time—Poland enacted it only last year—courts may have to decide. According to Matyka, this may take as many as three years.
In the meantime, Matyka said it is too early to rush to conclusions.
“I am not sure if somebody did something like that similar in the past, I am not sure whether it’s a signal to just correct it because nobody knows what will be the final outcome for Emperia,” he said.
A company representative for Emperia could not be reached for a comment.
To contact the reporter responsible for this story: Jan Stojaspal in Prague at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)