The consequences of these rulings could impact entities involved in transactions related to the sale of fixed assets, such as warehouses, halls, or other similar properties.
Organized part of an enterprise (ZCP) in brief
An organized part of an enterprise is a distinct group of tangible and intangible assets, including liabilities, within an existing enterprise that could function as an independent business, capable of performing tasks independently in economic activities. If the sold part includes real estate, the transaction must be notarized to be legally effective. It is crucial that the agreement is precisely formulated and includes a detailed description of the transferred properties.
Case study of a disputed case: WSA ruling (Case No. I SA/Łd 281/24)
Although the regulations on the non-applicability of VAT to the sale of an enterprise or a ZCP in its unchanged form have been in place for many years, they continue to be a source of disputes between tax authorities and taxpayers. One recent example is a case concluded with a final court ruling. The applicant was a capital company engaged in transportation and investing in the construction of a hotel and recreational facility. The company decided to separate this investment as a distinct branch to segregate its core business from the investment activity. The board's goal was to diversify economic risk and separate cost centers. The planned separation included real estate, assets, liabilities, and a team of employees involved in the investment.
The Director of the National Tax Information (KIS) stated that the separated part of the enterprise did not meet the definition of a ZCP under the Corporate Income Tax Act and the VAT Act, resulting in the entire transaction being subject to VAT. He argued that the separated part could not operate as an independent business. The company appealed this interpretation to the WSA in Łódź.
The WSA overturned the interpretation, reasoning that the branch was capable of independent operation due to the investment, land, and financial means from the sale of premises. The court emphasized that the key factor was the ability to operate independently, which the branch undoubtedly possessed. Even starting from scratch, the ability to obtain financial resources and credit for achieving goals was sufficient to consider it a ZCP.
The WSA noted that, according to the description of the future event, the branch would be able to finance itself by selling completed units, and transferring the credit related to the construction of the center would further facilitate this. The court concluded that the investment was equipped with the necessary assets, such as land and apartments ready for sale, allowing for sufficient revenue to finance and continue operations; thus, its sale should not be subject to VAT.
NSA Ruling (Case No. I FSK 1449/20)
In another case, the NSA dismissed the tax authority's cassation complaint regarding the recognition of a set of assets as a ZCP under the VAT Act and EU regulations. The case involved a civil partnership engaged in horticultural production, planning to transfer assets to one of the partners before the dissolution of the partnership. The transferred assets included a modern greenhouse, plastic tunnels, farm buildings, and gardening equipment, enabling the continuation of business activities without significant modifications.
The NSA noted that the key criterion for determining whether a set of assets constitutes a ZCP is the ability to conduct business without substantial changes. The court ruled that the transferred assets formed a functional and economically coherent whole, allowing the continuation of business activities in a similar manner. The horticultural activities would be carried out by one of the partners, confirming the fulfillment of ZCP criteria.
The court rejected the position of the Director of KIS, who argued that the transferred assets were not organizationally and financially separate, and therefore did not meet the definition of a ZCP. The NSA pointed out that the interpretation of the law should consider the case law of the Court of Justice of the European Union (CJEU), which allows for recognizing a set of assets enabling the continuation of business activities as a ZCP. It was emphasized that the purpose of the asset transfer was not to sell or liquidate the business but to continue the economic activity by the partner. The modern plastic tunnels and greenhouses, part of the transferred assets, were sufficient to carry out horticultural activities without significant changes.
The NSA stressed that the key element in recognizing a set of assets as a ZCP is the ability to conduct business without significant changes. The court concluded that the tax authority's argument was too restrictive and inconsistent with CJEU case law, which mandates considering the context and objectives of EU law regulations.
According to our expert
Łukasz Kempa, Doradca Podatkowy, Szef Działu Podatkowego w KR Group
Given the questioning of the authorities on the status of ZCP in order to avoid risks, it is advisable to secure one's own requests for interpretation, as an area such as ZCP is not entirely secure. The lack of clear criteria for the recognition of a set of assets as forming an organized part of a business creates great uncertainty. The tax consequences of adopting an incorrect classification, i.e. the risk of the tax authorities finding that the entire transaction is subject to 23% VAT, may call into question the profitability of the entire transaction.
