Month: January 2017

The Supreme Administrative Court takes the side of tax payers in the dispute for VAT deduction in the case of acquisition of commercial real property

A written justification of the judgement of the Supreme Administrative Court of 24 November 2016, case file No. I FSK 1316/15, was published. By virtue of the judgement, the Court set aside the previous judgement of the province administrative court, finding tax authorities to be right in qualifying the sale of operating commercial real property as a disposal of an organised part of enterprise which is not VAT-taxable, and not – as originally assumed by taxpayers – as a VAT taxable supply of goods.

According to the Supreme Administrative Court:
• Real property alone does not constitute an entity capable of running independent business activity, unless they are separate in the structure of the seller in financial and organisational terms. Seller’s use of real property for lease, just as in the case of such use by the Buyer, is not indicative of the fact that a transaction concerns an organised part of enterprise.
• Circumstances such as capital or personal links between the parties to a transaction, employing the legal services of the same accounting and real property management entities, concluding service agreements by the buyer immediately after the transaction do not mean that what is being sold is an organised part of enterprise.

The case at hand differed from the transaction model used on the market in that the lease agreements were terminated prior to the sale and concluded with the same tenants. Nevertheless, the main reason for the Supreme Administrative Court’s decision was that real property, without being financially and structurally separate on the seller’s side (i.e. does not constitute an organised structure), cannot be treated as an organised part of enterprise.

All one can do is hope that such arguments will be accepted by tax authorities which have been for some time now challenging the right to deduct VAT in the case of real property transactions.

In January 2017, Marcin Kroll was made partner at BSWW Legal and Tax. Marcin Kroll is a patent attorney and partner at BSWW Legal & Tax as well as a European trade mark and design attorney.

He specializes in the protection of intellectual property. He provides comprehensive services in terms of protecting and combating infringements in matters related to trademarks, industrial designs, patents, copyrights and unfair competition acts. Marcin prepares and implements IP protection strategies for his clients, also with international reach. He represents clients before the Polish Patent Office, EUIPO and the International Bureau of WIPO. He advises in terms of transfer and commercialization of technology, which in particular includes preparing and negotiating contracts transferring exclusive rights and license agreements.

He is also interested in new technologies and personal data and privacy protection. He also advises on advertising law, e-commerce and commercial law.
Moreover, his experience covers competition law, in terms of both anti-trust procedures and control of concentration procedures before the President of the Office of Competition and Consumer Protection and the European Commission.

Marcin speaks English fluently and has an intermediate command of German.

Marcin is a graduate of the Faculty of Law and Administration at the University of Warsaw. Marcin has also completed a course in American Law organized by the University of Warsaw in cooperation with the University of Florida Levin College of Law, as well as postgraduate studies about intellectual property rights at the Grocjusz Intellectual Property Rights Centre, Cracow. His Master’s thesis was recognized in the 10th Edition of the Contest for the Best Master’s Thesis on Intellectual Property organized by the Polish Patent Office.

Lawyers of BSWW Legal & Tax has provided advisory services with respect to issue of secured series C bonds of i2 Development S.A. with a total face value of PLN 30m. i2 Development S.A. is a highly dynamic developer company listed on the Warsaw Stock Exchange. The bonds are secured with a guarantee granted by a subsidiary company and a subordination agreement.

At the beginning of the year 2017, a bill was passed whereby businesses will have the right to choose whether they wish to resolve a consumer dispute amicably or whether they prefer to reach for the traditional option and go to court.

The Act of 23 September 2016 on Alternative Dispute Resolution for Consumer Disputes, which entered into force on 10 January 2017, implements a so-called legislative package comprising the directive 2013/11/EU of 21 May 2013 on alternative dispute resolution for consumer disputes and the regulation of the European Parliament and od the Council (EU) no 524/2013 of 21 May 2013 on online dispute resolution for consumer disputes.

To which disputes does the act pertain?
The act applies to disputes between consumers residing in the territory of Poland or another EU member state and an undertaking with registered office in the territory of Poland.

Is it obligatory to solve consumer disputes amicably?
To obligation to solve disputes with consumers amicably was imposed only on undertakings operating on the financial market in case of proceedings before the Financial Ombudsman.
In other cases, an undertaking can voluntarily join the consensual dispute resolution system by becoming a member of given trade organisation, having its name entered in the register kept by a relevant authorized entity or including a consent for the jurisdiction of the authorised entity in specimen contracts used in trading with consumers.

Which entities are authorised to solve disputes?
Proceedings are carried out by authorised entities, i.e., any entities which have been entered in the register kept by the President of the Office of Competition and Consumer Protection. Authorisation can be awarded to both a public entity (President of the Office of Electronic Communications, Trade Inspection or Arbitral Tribunal of Polish Financial Supervision Authority) as well as a private entity (entities set up in a given industry).

What are the methods of dispute resolution provided for in the act?
Consensual dispute resolution proceedings for consumer disputes may involve facilitating the approximation of positions of parties in order to settle a dispute (mediation), providing the parties with a settlement proposal (conciliation) and settling a dispute and imposing a solution on the parties (arbitration).
Importantly enough, only the settlement of a dispute by way of arbitration will be binding and only if the parties were informed beforehand of its binding nature as well as the consequences of non-compliance and only if they consented to such settlement.

What are the obligations of an undertaking seeking to solve a consumer dispute consensually?
If an undertaking seeks to solve a consumer dispute consensually (whether by choice or as required by a statute), it must notify the consumer of the entities authorised to settle the dispute. Such information must include at least the website address of the authorised entity and must be provided in a manner which will be clear and accessible to the consumer, also on the website of such undertaking (if the undertaking has one) and in specimen contracts concluded with consumers (if the undertaking uses such specimen contracts).
If an undertaking concludes at the same time sales contracts and service contracts via the Internet, it is also bound to provide electronic link to the ODR platform (https://webgate.ec.europa.eu/odr/main/index.cfm?event=main.home.show&lng=PL).

Does the act introduce any obligations binding upon all undertakings?
Yes. In the case of rejection of a complaint filed by a consumer it is the obligation of each undertaking to inform such consumer (in writing or via any durable medium) about the entity authorised to resolve the dispute and to make a statement on the consent to having such dispute solved by said entity. It should be noted that in case of a failure to make a statement it is assumed that an undertaking consented to participate in proceedings. The act does not specify the deadline within which the above obligation should be met.
The above obligation applies to disputes which result from complaints filed after 10 January 2017.

Interruption of limitation period
In accordance with the act, initiation of consensual dispute resolution for a consumer dispute results in an interruption of limitation period of a claim serving as basis for the dispute.
The obligation to address consumer’s complaint
What is more, the act also introduces a material change in the Act of 30 May 2014 on Consumer’s Rights.
In the case of complaints filed after 10 January 2017, undertakings will be bound to respond to complaints filed by consumers within 30 days of their receipt. If an undertaking fails to meet the deadline, it is deemed that it recognized such complaint. Response should be given in writing or via another durable medium. It is worth noting that so far it had been obligatory to respond to a complaint only in the telecommunication industry (under the Telecommunication Law of 16 July 2004) and the tourism industry (under the Act of 29 August 1997 on Touristic Services).

The effects of the introduction of the consensual dispute resolution system
The purpose of the new regulations is to ensure that consumers have an alternative way of resolving disputes with undertakings. Alternative dispute resolution methods are based on time effectiveness, reduction of formalities (as compared to action in court), voluntary participation, guarantee of confidentiality and the participation of a neutral and unbiased expert. As a result, both parties have a chance of reaching a mutually satisfactory solution without the need to get into long-term and expensive court proceedings.

It is hard to say if the new regulations have the desired effect. Let’s remember that in the end it is the undertaking who decides whether or not to employ alternative dispute resolution for consumer disputes. The new regulations are therefore a kind of a trial for the market the result of which will show if companies are mature enough and open to alternative dispute resolution.

Michał Sadrak, Obligacje.pl | 12 January 2017

A majority of organisations and interested entities are critical of the bill prepared by the Ministry of Justice which seeks, among others, to further restrict non-interest costs. The public consultation also covered bonds unfortunately, however, they were contemplated in the context of potential problems with their redemption.

The original version of the document published on government websites contained information from correspondence to officials of the Ministry of Justice, which should not have been included in the document. At the request of relevant parties and after the document had been taken down from the website legislacja.rcl.gov.pl, we also removed from this communication some quotes taken from the document. The quoted person said during a telephone conversion with Obligacje.pl that the correspondence the fragments of which had been published on legislacja.gov.pl had been placed in a specific context and with a view to calming the situation and not aggravating it.

In general, institutions which decided to express their views during consultation agreed that the market required regulation in terms of unfair practices. At the same time, most of organisations and companies which will be affected if the bill passes stressed that the proposed limit was too strict and too little time had passed from the introduction of the previous limit in order to accurately determine the effects of the previous regulations.

Those who oppose the Usury Act argue, using more or less blunt language, that the entrance into force of the regulations in their current form would increase financial exclusion and cause growth of grey area (which opinion is shared by the National Bank of Poland). It is also argued that unemployment will grow, budget revenue will be reduced and GDP will further suffer on account of decrease in consumption.

Almost 30 entities, which included lending companies, commercial chambers, employers’ federations, law firms, associations (e.g. of notaries public, judges), state credit union or even the Polish Bank Association, participated in the consultation. What is more, seven institutions expressed their opinion during the consultation, including the Polish Financial Supervisory Authority, the National Bank of Poland or the Office of Competition and Consumer Protection. Of course not all positions were equally critical, some of them focused on technical aspects of the bill only.
The issue of debt securities was addressed not only as a source of financing of lending companies. The Chamber of Brokerage Houses suggests that corporate bonds be excluded from the act so that the non-interest costs can be freely shaped. The Chamber of Brokerage Houses reminds that the act on bonds currently in force excludes the application of the provisions on maximum interest to debt interest rates. The Chamber also looked at the issue of security. After the passing of the bill, securities with a value of 150% of the face value of issue would disappear from the market which, in the Chamber’s opinion, could be “catastrophic for the entire debt financing market”.

As part of the public consultation, the issue of bonds, in terms of both costs and securities, was discussed by BSWW Legal & Tax the opinion of which was published on Obligacje.pl in the middle of December.

BSWW Legal & Tax advises Rank Progress on the sale of Galeria Świdnicka for EUR 26.7m

A subsidiary of Rank Progress concluded with Calioppe Investments a preliminary sale agreement regarding Galeria Świdnicka. The deal is estimated at EUR 26.7m.

BSWW Legal & Tax has represented Rank Progress at the stage of preparing and concluding the transaction.

Legal services involved, i.a., preparing, negotiating and closing the preliminary sale agreement and advice in terms of copyrights and trademarks.

The team advising Rank Progress was led by Michał Wielhorski, advocate, managing partner at BSWW Legal & Tax, with support from Mateusz Prokopiuk, Marcelina Daszkiewicz and Izabela Żmijewska.

“It is not the first project of this type handled by us for Rank Progress in 2016. We are glad that once more the leader in the construction of large-format buildings trusted us and appreciated out knowledge, experience and skills in terms of major real estate transactions,” said Michał Wielhorski.

Bartosz Miszkurka and Dariusz Zboch from Solivan represented the buyer during the negotiations and conclusion of the preliminary sale agreement.

Galeria Świdnicka is located in Świdnica in the place where an electrotechnical facility formerly stood. In terms of its design, the investment is consistent with the industrial city district where it is located. Red clinker bricks pay a tribute to Lower Silesia tradition and soft lines balance out the austerity of the project.

The investment covers a total area of 24,000 m2, floor space of 15,600 m2 and 400 parking places for customers.

Major tenants of Galeria Świdnicka include: Apart, CCC, Cropptown, Diverse, Esotiq & Henderson, House, Sinsay, Mohito, Monnari, Orsay, Reserved, Giacomo Conti, Wojas, Big Star, Empik, Intermarche, Kolporter, Media Expert, Pepco, JYSK, Rossman, ITAKA.

Maksym Jabłkiewicz for www.infor.pl

The act of 29 November 2016 introduced new regulations concerning income tax threshold and, what follows, modified the rules of calculating advance payments towards PIT.

Let us remind you that as of 2017 the sum reducing the tax will be:
• PLN 1,188 – for annual income up to PLN 6,600,
• PLN 1,188 less the amount calculated as follows: PLN 631.98 x (annual income – PLN 6,600)/PLN 4,4000, for annual income higher than PLN 6,600 but lower than PLN 11,000,
• PLN 556.02 – for annual income higher than PLN 11,000 but lower than PLN 85,528,
• PLN 556,02 less the amount calculated as follows: PLN 556,02 x (annual income – PLN 85,528)/PLN 41,472, for the tax base higher than PLN 85,528 but no higher than PLN 127,000.

Therefore, the change will also affect the rules of calculating the advance payments towards PIT by taxpayers settling income generated on the basis of employment relationship. In another words, for employees who earn annually no more than PLN 85,528, advance payments towards the tax withheld by taxpayers will be reduced by 1/12 of the sum reducing the tax, i.e., PLN 46.33 (PLN 556,02 annually). In order to apply such reduction of monthly advance payments, an employee, as it has been the case so far, will be bound to provide a taxpayer (employer) with a statement for the purposes of calculating monthly advance payments towards personal income tax (form PIT-2).

If, however, an employee’s income for a fiscal year exceeds PLN 85,528, a taxpayer will be bound to calculate advance payment towards tax without taking into account the sum reducing the tax (PLN 46.33) as of the month when the above referred to sum was exceeded. An employee can also submit a statement to a taxpayer indicating that in a given year his or her income will exceed PLN 85,528. Then a taxpayer will be bound to withhold advance payments without taking into account the sum reducing the tax – starting from the month following the month when such a statement was submitted.
One should remember that if the annual tax settlement of an employee shows that his or her income exceeded PLN 85,528, such employee will be bound to reimburse tax authorities for the relevant part of the sum reducing the tax when filing annual tax returns.

Example
An employee earned an annual income of PLN 95,500. In the annual settlement, the sum reducing the tax will be calculated as follows:
PLN 556.02 x (PLN 95,500 – PLN 85,528)/PLN 41,472 = PLN 133.70;
The sum reducing the tax: PLN 556.02 – PLN 133.70 = PLN 422.32.
However, if employee’s income exceed in the annual settlement a sum of PLN 127,000, the sum reducing the tax will need to be reimbursed (if advance payments were fully or partially reduced by it by a taxpayer).

Example
In a year an employee earned PLN 200,000. Let’s assume that for the first 5 months of the fiscal year a taxpayer deducted from his or her advance payments a sum reducing the tax equal to PLN 231.65 (PLN 46.33 x 5). In the end, in the annual settlement such employee will not be entitled to reduce tax by PLN 231.65 (it will need to be remitted to the tax office).

Following the legislative process carried out by the Ministry of Justice in connection with the bill on the amendment of the Criminal Code and certain other acts, published with justification on 7 December 2016, and following the fact that as part of the legislative process regarding the bill it has been referred by the Ministry of Justice for review, and the review is pending, BSWW Legal & Tax has submitted two opinions concerning the bill. The opinions concern the text and the consequences of the planned changes which to some extent seem to literally contradict the justification of the amendment. The first of the opinions discusses the bill from the perspective of financial institutions market, in particular, corporate bonds and corporate loans, the second one pertains to the market of loans.

Puls Biznesu: article published on 2016-12-22 in issue no. 244/2016, p. 7.
Kamil Kosiński

Company debentures may become more risky and expensive as a result of changes which are to curb… usury.

In July 2015, a new act on bonds entered into force. It was supposed to stimulate the market by introducing new types of debt instruments and improving the security of small investors. However, half a year has passed and already voices can be heard saying that a step back is taken by lawmakers in terms of the security of bondholders. The controversy is caused by the bill on the amendment of the Criminal Law and certain other acts. The bill contains many usury laws, including… an amendment of the Civil Code. A new article is to be introduced into the Civil Code, Article 387 (1), which would regulate all costs related to granting a loan, including also the costs involved in bond purchases.
“The proposed amendment to the Civil Code, if applied literally, is universal. It should be understood as applying not only to consumer loans, but also to any other forms of financing, both among consumers as well as professionals,” says Piotr Smołuch, a partner at Bieniak Smołuch Wielhorski Wojnar i Wspólnicy.

Security value
In accordance with the act on bonds, bond interest rate can be fixed freely. The bill does not change that. One of three paragraphs of the planned Article 387 (1) pertains, however, to securing claims “related to rendering pecuniary considerations”. It assumes that security for a loan will not be higher than the value of such loan increased by maximum interest for the period for which it was granted plus six months. Currently, maximum interest rate is 10 percent. It can be assumed that in 2017 they will not change seen as they are based on the reference rate of the National Bank of Poland. If the proposed provisions were already in force, in the case of a 10-year loan the security would reach 205 percent of the loan. In the case of a 3-year loan – only 135 percent. This is the issue with the planned changes.
“Usually, the security reaches about 120-150 percent of value of the bond issue. But there are also securities with higher value,” says Krzysztof Dziubiński, management board member at DM Navigator.
“The issuers with whom we cooperate provide a security of no less than 150 percent of the value of the issue. It is a standard because the market is now big enough for some standards to take shape,” states Michał Jarosławski, director of offering and advisory department of Vestor DM.

Not all bonds are secured. Many buyers of debentures experienced first-hand that security is often good on paper, but when it comes to its enforcement, it proves to be illusory. This, however, does not change the fact that in the case of a relatively short redemption date (up to 4 years) the provisions of law may reduce bondholders’ security.
“Some financial institutions have an internal policy concerning subscribing for bonds with about 150 percent security. And in the case of issue by smaller businesses, this seems to be the market standard. Large companies with good financial position will probably have no problem with handling this, but for small and medium companies the proposed change may mean that they will not be able to use financing through bonds,” explains Piotr Smołuch.

Contrary to his opinion, however, big issuers may also struggle. The prospectus of Ghelamco Invest approved in January 2016 provides for a bond issue with a value of PLN 350m. The company issued eight series of 4-year bonds with a value of PLN 280m which are also available to individual investors. Ghelamco Group is one of developer giants. However, Ghelamco Invest does not conduct any real activity. The entire credibility of the company is based on the guarantee granted by another entity from the group – Granbero Holdings. For the purposes of the bond issue, Granbero granted to Ghelamco a guarantee for PLN 630m. Given the 4-year redemption date of the securities and the value of the issue specified in the prospectus, it is possible that the maximum security could be only PLN 508m. This means that either investors would have to accept higher risk exposure or Ghelamco would have to materially change the structure of the offer. White & Case M. Studniarek i Wspólnicy, the law firm cooperating with Ghelamco, refused to comment on the amendment.

There should be no doubts
There are, however, those who do not agree with the restrictive interpretation of the issue of loan security in the proposed amendment to the Civil Code.
“I do not support the thesis that it will apply to bonds. Bond interest rate is exempt from the provisions of law on maximum interest a part of which is the paragraph on the security value in question. Inadequate editing of the provision, however, can lead to doubts. A court or the Polish Financial Supervision Authority may be of different opinion,” comments Wojciech Chabasiewicz, partner at Chabasiewicz Kowalska i Partnerzy in Cracow which worked on the bond issue programmes of Kruk (debt servicing) and PCC Rokita (chemical company).
Similar position was taken by dr hab. Paweł Wajda of Baker & McKenzie Krzyżowski i Wspólnicy. He does, however, recognize that there is a risk of a raise in the costs of financing through debentures.
“As a result of the reduction of overcollateralization on the basis of the proposed bill, bonds may appear less attractive to investors who will require higher interest on such bonds. But frankly it is just to be on the safe side,” thinks Paweł Wajda.

The changes introduced in the CCC concern a new type of a commercial power of attorney (prokura), minority shareholders of a limited liability companies and their rights in terms of convening shareholders’ meetings, revising meeting agenda by shareholders, mandatory elements of share certificates and dividend payout in public companies.

On 1 January 2017, an act amending certain other acts entered into force in order to improve the legal environment with which business owners have to cope (Journal of Laws of 2016, item 2255). The amending act is an element of a whole package of improvements planned by the lawmakers which are to facilitate running a business in Poland. The scope of the amendment also includes the Commercial Companies Code.
Commercial power of attorney

The changes introduced to the Commercial Companies Code include among others regulations adjusting the previously applicable provisions to the new type of commercial power of attorney provided for in the Civil Code, so-called irregular commercial power of attorney to joint representation (prokura łączna niewłaściwa) which empowers the holder of such a power of attorney to act also or only jointly with a member of a governing body or a partner entitled to represent a partnership.

The rights of minority shareholders
The amended CCC also facilitates for minority shareholders of limited liability company to exercise the rights to convene shareholders’ meetings and add items to agenda.
Article 236 § 1 of the CCC in the new wording states that shareholders requesting that a shareholders’ meeting be convened can at the same time request that specified issues be placed on the agenda of such meeting.
The change rules out the previously possible interpretation of the provision whereby a management board could comply with the shareholder’s request and convene a meeting without accepting the agenda proposed by the shareholders.
What is more § 11 has been added to Article 236 of the CCC whereby a threshold of the stake in a company share capital entitling one to request that certain items be placed on the agenda of a shareholders’ meeting (before 1 January 2017 the stake of shareholders requesting the revision of an agenda was 1/10 of the share capital, the amendment lowers this threshold to 1/20). The provisions of § 11 allow for the articles of association of a company to provide for shareholders representing less than 1/20 of a share capital to have a right to revise agenda of a shareholders’ meeting. It is, therefore, inadmissible to establish a threshold from which an agenda may be revised which would exceed 1/20.
As a result of the amendment in question there is a risk that the provisions in articles of association which are based on the previous provisions of the CCC concerning the 1/10 sake in a share capital entitling to revise an agenda will be found invalid.
The change may also affect practice regarding transactions (joint venture agreements, M&A transactions) where the lower threshold of the stake in a share capital vesting significant rights with shareholders will need to be taken into consideration.
Moreover, the changes introduce a 3-week deadline for filing a written request by shareholders and oblige the management board to introduce changes in the agenda and notify the changes in line with the procedure prescribed for convening shareholders’ meetings.
Another right introduced by the above said act with a view to improving the protection of minority shareholders of limited liability companies is the right of the shareholders who requested the convention of a meeting (under the authority of a court) to apply to a register court for exemption form the obligation to cover the costs imposed under a resolution of a shareholders’ meeting (new wording of Article 237 § 2 of the CCC). Before the act in question became binding the costs of convening and holding a meeting convened by authorized shareholders under the authority of a court were incurred by the convening shareholders without any possibility of exemption from such costs, unless a resolution was passed on the covering of such costs by the company. Under the current provisions of law, if a resolution was passed on the covering of the costs by the shareholders, the shareholders bound to cover the costs of a meeting (the shareholders convening the meeting) may apply to a registration court to be exempt from covering such costs. It is not clear if in the current legal conditions the right to apply for exemption from costs of convening and holding a shareholders‘ meeting is to be enjoyed by shareholders also when a resolution on the covering of the costs was not passed (on the literal level, the amended provision of law only points to exemption from the obligation to cover the costs imposed under a resolution of a shareholders’ meeting, however, the second sentence of Article 237 § 2 of the Commercial Companies Code leads one to assume that shareholders incur such costs regardless of whether or not any resolution was passed).

Share certificates
Changes also concern the requirements regarding obligatory elements of share certificates.
The obligation to affix the company seal on share certificates was given up.
Prior to the amendments, the lack of a company seal resulted in invalidity of a share certificate (new wording of Article 328 § 2 of the CCC). The change is supposed to reduce the formality of the process of share certificate issue and mitigate the requirements for share certificate validity. The lawmakers rightly assumed that affixing a seal to a document does not raise its reliability nowadays in the face of the general availability of any kinds of seals.

Dividends in public companies
Modifications were also introduced in the regulations regarding dividend payouts in public companies.
In accordance with amended Article 348 § 4 of the CCC, the day of dividend payout may fall on a day no earlier than five days and no later than three months of the passing of a resolution. Before 1 January 2017, the date of dividend payout in public companies was regulated only in good practices of companies listed on the WSE or NewConnect.
Thereby lawmakers gave up the non-binding regulation which was based on the principle “comply or explain” in favour of regulations of statutory rank.

The day of conversion of a natural person
The amendments to the CCC also adjust the provision concerning the day of conversion of a natural person into a single-shareholder capital company to the amendment of the act on freedom of economic activity.

The disclosure of a conflict of interest of a management board member and a company
The amending act introduces also, apart from the already binding obligation to refrain from dealing with matters involving a conflict of interest between a company and a management board member, his or her spouse, relatives up to second degree of affinity or consanguinity, and persons with whom he or she is personally related, the obligation of a management board member to disclose such conflict of interest. In remains unclear, however, on what grounds, how and to what extent a management board member should do so. The amendment also fails to specify to whom such information should be disclosed. It seems, however, that the remaining management board members are authorised to accept such statement of a conflict of interest which was also indicated in the justification of the bill.