We would like to draw your attention to the judgement of the Supreme Administrative Court (hereinafter: the SAC) of 24 June 2016, file ref. No. II FSK 1493/14, according to which VAT payers are obliged to pay tax on civil law transactions (TCLT) if a loan transaction is not carried out in the course of their business operations.
Regulations relating to the issue in question
First, it should be noted that in accordance with Art. 1 paragraph 1 item 1 b of the Tax on Civil Law Transactions Act of 9 September 2000 (Journal of Laws of 2015, item 626, as amended) (hereinafter: the TCLT Act), loan agreements are subject to tax. Art. 2 paragraph 4 of the TCLT Act (in the version in force until the end of 2015) provides that civil law transactions other than articles of association and amendments thereto, are not subject to the tax if at least one of the parties is subject to value added tax or exempt from this tax in connection with the legal transaction. Therefore, if a legal transaction is subject to the provisions of the Value Added Tax Act (taxed or exempted transaction), it is not subject to the TCLT. This rule applies regardless of which party to the civil law transaction referred to in the TCLT Act is subject to or exempt from VAT in connection with this transaction.
The point at issue between the taxpayer and the tax authority
In the analysed case, a limited liability company granted a loan in the amount of PLN 5 million to a general partnership. The borrower first paid the amount payable for the TCLT, and then sought reimbursement of the tax paid together with interest on late payment and the costs of reminder, taking the view that this loan as a transaction exempt from VAT taxation (Art. 43(1) item 38 of the Act of 11 March 2004 (Journal of Laws No. 177, item 1054) (hereinafter the VAT Act)) is not subject to the TCLT. The point at issue was limited, therefore, to deciding whether, as alleged by the taxpayer and in accordance with Art. 15 paragraphs 1 and 2 of the VAT Act, in connection with Art. 5 paragraph 1 item 1 and Art. 8 paragraph 1 of this Act, the loan in question was granted by the lender in the course of its business and was subject to VAT, and consequently was exempt from the tax on civil law transactions. Both the Provincial Administrative Court (PAC) in Gdańsk and the SAC took a stance opposite to the taxpayer's position in this case.
The position of the PAC and SAC
The court of first and second instance ruled that a loan agreement of an incidental nature, concluded in the emerging economic cooperation between contracting parties does not result in the initiation of commercial lending operations by the lender, typical for professional lending services.
As the SAC still has not published grounds for its judgement, quoted below are the arguments used in this case by the court of first instance (judgement of 11 December 2013, file ref. No. I SA/Gd 1309-/13) admitted by the SAC:
- exemption of a loan agreement from the regulations on the TCLT is not determined by the fact that the contractual parties are VAT payers, but only by the fact that at least one of them is subject to VAT or exempt from this tax in respect of this particular transaction - in this case, the loan agreement;
- to be subject to the tax on goods and services (taxed or exempted transaction), the service must be performed by a person who operates in this field as a VAT payer in the course of its business operations;
- the condition determining that the transaction is subject to VAT is that it is carried out by an economic operator as a taxable person conducting business operations in this particular field, which consequently becomes its continuing and organised activity;
- the fact that the transaction was carried out several times or once but with the intention of repetition does not determine the taxation of the transaction without establishing each time that the economic operator acted as a VAT payer in each particular transaction.
The PAC in Gdańsk drew attention to the fact that lending was not part of the core business of the lender and was not repeatable. Thus, the provision of lending services by the lender has not taken a professional form, meaning continuing and organised business operations. The Court decided, therefore, that the loan cannot be considered to be granted in the framework of economic activity, and thus does not constitute a loan service within the meaning of the VAT Act, and therefore is subject to the tax on civil law transactions. The Court also emphasised that the loan was granted between related parties primarily in order to support the company associated with the lender, and not to derive profit from the transaction.
Other judgements of the SAC in this case
It is worth noting that in the recent past the same facts have already been examined by the SAC with similar judgements. Examples include:
- Supreme Administrative Court judgement of 14 October 2015, file ref. No. II FSK 2205/13;
- Supreme Administrative Court judgement of 30 May 2012, file ref. No. II FSK 2276/10.
In summary, VAT payers whose principal activity does not involve lending, when carrying out a transaction involving a loan, in particular granted on a one-off basis, should consider whether they are obliged to treat this transaction as executed in the course of their business, and thus subject to the VAT Act, or outside their business operations, and hence subject to the TCLT. The very fact of having the VAT payer status is of no significance in this case. What matters here is whether the economic operator acts as a VAT payer with regard to this particular transaction of granting a loan.
If you have any questions or need to discuss the topic, you are strongly encouraged to contact our expert, Piotr LISS:
tel. +48 61 8515 766
fax +48 61 8515 786