Critical commentary on the judgment of the Voivodeship Administrative Court in Wrocław of 25 June 2024 case no. I SA/Wr 104/24

Abstract

This critical commentary concerns the judgment of the Voivodeship Administrative Court in Wrocław of 25 June 2024 (case no. I SA/Wr 104/24), in which the court dismissed the complaint of M LLC against an individual tax ruling issued by the Director of National Tax Information regarding the recognition of taxable income arising from the merger of sister companies with the same sole shareholder. The commented judgment is of precedential importance for corporate restructuring practices in Poland as it endorses a strict literal interpretation of the tax provisions, leading to economically unjustified taxation of reorganization operations. The court’s erroneous position creates a significant tax barrier to company consolidation within corporate groups, thereby hindering economic efficiency and the competitiveness of Polish enterprises in the European market. The author provides a critical analysis of the interpretation adopted by the court with respect to Article 12(1)(8d) of the Corporate Income Tax Act, demonstrating its inconsistency with the economic substance of the transaction, the principle of tax neutrality in business reorganizations, and the constitutional principle of equality in taxation. Particular attention is given to the court’s failure to recognize the absence of any actual economic gain in mergers between companies belonging to the same corporate group, which contradicts the fundamental principles of fair taxation – especially the principle that only real increases in wealth should be subject to taxation. The commentary presents arguments in favor of a systematic and teleological interpretation that would uphold the economic neutrality of such transactions, and includes de lege ferenda proposals aimed at explicitly ensuring the tax neutrality of these operations, in accordance with the axiological framework of EU law expressed in Council Directive 2009/133/EC.