NEWSLETTER - November 2012

Dear readers,

We are happy to present you the November issue of our newsletter.
We would particularly like to draw your attention to the article about attractive taxation of joint – stock partnership. It is highly possible that despite the Ministry of Finance’s attempt to introduce some changes in this matter, taxpayers will still be able to take advantage of these regulations.

Furthermore, in November issue of our newsletter you will also find a short report on the Supreme Court’s ruling, concerning a plea of meeting one’s obligation in a suit for discontinuance of enforcement of the enforceable title.

We would also like to draw your attention to some practical problems which may arise while starting a foundation. We are also mentioning the scheduled amendments of the Road Traffic Act, under which the owner of a motor vehicle is obliged, at the request of the authorized body, to identify the person to whom they entrusted the vehicle at the moment when the traffic offense was committed.

We wish you a pleasant read.
WBW team

Taxation of limited joint-stock partnership still attractive

Recently, attractive taxation of limited joint-stock partnerships (spółka komandytowo-akcyjna, hereinafter referred to as LJSPs) has been widely discussed.

This taxation is attractive because no partnerships, including LJSPs, are subject to income tax, which distinguishes them from companies, such as limited liability companies and joint-stock companies. Income tax is paid only by partners whose income from participation in the partnership is taxed either with personal income tax (PIT) or corporate income tax (CIT), depending on the legal status of a particular partner. Consequently, partnerships are not subject to double taxation, which is characteristic of companies. In the case of companies, income tax is paid both on the company's income and on a shareholder's income from participation in the company (a dividend).

The legal status of a LJSP offers one more tax advantage. According to the recent judicature of administrative courts, tax on the income which has been generated by the LJSP for its shareholder is due only when a dividend is actually paid to a shareholder. Shareholders of LJSPs are not obliged to make advance PIT/CIT payments on a monthly basis. The obligation to make an advance payment arises only in the month when a dividend has been actually received by a shareholder (it is a so-called occasional advance payment).

Based on the rule of tax justice, the Ministry of Finances has drawn up a bill of which goal is to abolish some tax advantages offered by LJSPs. According to the bill, LJSPs would become subject to the regulations of the CIT Act. As a result, the income of such partnerships would be subject to double taxation similarly to the income of limited liability companies and joint-stock companies.

The new regulation was supposed to come into force on 1st January 2013. However, amendments proposed in the bill were met with such widespread criticism that they are still being analyzed and discussed. There is not enough time to pass the new law in the manner which would enable it to enter into force at the beginning of the next year. As the amendment bill is yet to be handed to the Council of Ministers for acceptance, it is difficult to predict when it will be considered by the Sejm. Undoubtedly, it will happen no sooner than in several months.

Nastazja Lisek, prawnik

New suit, "old" circumstances

In the civil proceedings law, there is a rule according to which the moment when the judgment becomes final and binding is the time limit applicable to the factual material of the case. It means that, as a matter of principle, in the situation in which particular circumstances and pleas based on those circumstances existed or could be formulated at the moment of closing the proceedings but the party did not raise them effectively, it is not possible to invoke them after the judgment became final and binding. This rule is justified, among others, by the need to maintain stability of court decisions as well as by the necessity to ensure efficiency and effectiveness of proceedings as a whole.

Sometimes, however, the law allows for exceptions to the rule in question. In the case no. III CZP 16/12, the Supreme Court examined whether the exceptions include suits for discontinuance of enforcement which are referred to in Article 840.1.2 of the Code of Civil Procedure. According to this article, the debtor may file a suit for discontinuance of enforcement of the enforceable title which has been issued against them (the judgment with an enforcement clause). They can base their suit on the plea alleging that they provided the performance as long as this plea was not examined during the proceedings.

The Supreme Court adjudicated the matter in question in the resolution of 23rd May 2012. It stated that the debtor may file a suit for discontinuance of enforcement and base it on the plea alleging provision of the performance only when the law prohibited to examine this plea during the proceedings in which the enforceable title (the judgment) was issued. Consequently, in the situation in which the plea was not examined because e.g. the court overlooked it or the party failed to act, the mistake can be "corrected" only in appeals or revocation proceedings but not by filing a claim.

The Supreme Court stated that adjudicating otherwise would be an act of unjustified and unreasonable rewarding of the negligible party who did not protect their interests and did not use the rights to which they were entitled during examination proceedings, including the right to the means of challenge.

Nastazja Lisek, prawnik

Starting a foundation -  several practical problems to avoid

When people decide to start foundations, they are not always aware that such entities are not easy to set up. Some choose to establish a foundation instead of an association, which can have similar objectives, because they assume that it is a less complicated process to create the former than the latter. And to some extent they are right because they have to fill in fewer forms; however, this does not mean that there are no obstacles to be overcome while starting a foundation.

It seems that the biggest number of possible problems is related to the phase of drawing up the statute. The statute is well-formulated when it contain provisions which enable the foundation to operate smoothly. If the statute is flawed, it may hinder daily operations of the foundation. The elements which should be included in the statute are enumerated in Article 5.1 of the Foundations Act (Ustawa o Fundacjach). The elements which the Act defines first are: the name and seat of the foundation. It is worth noting that there is no requirement to include the word "foundation" in the name but this word is used frequently for practical reasons. As for the seat, it is convenient to define it only as a name of the town. However, it is sometimes the case that a detailed address of the seat is given in the statute. Such a definition of the seat is not a mistake; however, it is very impractical because any changes to the foundation's address within the same town require amending the relevant article of the statute, notifying the National Court Register of the amendment and, consequently, incurring extra costs. Another element which, according to the Foundations Act, has to be included in statute are the initial assets i.e. the founding capital of the foundation. It is sometimes difficult to define the minimum founding capital in the case of foundations which do not plan to carry out business activity. There is no regulation concerning the minimum amount of founding capital. In practice, it is agreed that this capital should amount to 500 - 1000 PLN. Since the minimum amount is not defined by the law, it is possible to register foundations which have smaller founding capitals but this is not necessarily a positive phenomenon. Other elements which must be included in statute are: the objectives of the foundation and the methods through which these objectives are to be achieved. The Foundations Act requires that the objective of the foundation should be beneficial to the society or the economy. Therefore, it is not possible to set up a foundation of which sole objective is to serve private interests of its founder. The way in which objectives of the foundation are defined in the statute is very important because it determines the rights of the foundation to be exempt from income tax, apply for subsidies or make donations. According to the Foundations Act, bylaws have to define directors of the foundation (the only mandatory body is the board of directors), the ways in which the foundation is represented and incurs liabilities. The body which is authorized to represent the foundation is the board of directors but it is recommended to define which directors make declarations of will on behalf of the foundation.

The matters discussed above are only selected issues which may become problematic in the course of drawing up the statute. This is why it is worth paying close attention to the way in which the statute is drafted because its correct wording will enable the foundation to operate efficiently and avoid certain problems.

Ewa Furman, prawnik

Amendments to the Road Traffic Act

The Parliamentary Group for Road Traffic Safety (Parlamentarny Zespół do spraw Bezpieczeństwa Ruchu Drogowego) is drawing up an amendment to the Road Traffic Act (ustawa Prawo o ruchu drogowym). The amendment is supposed to change Article 78 of the Act under which the owner of a motor vehicle is obliged, at the request of the authorized body, to identify the person to whom they entrusted the vehicle at the moment when the traffic offense was committed. Nowadays, it is common that vehicle owners avoid identifying the driver claiming that some time has already passed and they no longer remember or that the number of employees (or household members, in the case of private persons) who drive the vehicle regularly is too large to point to one person. As a result, drivers who committed traffic offenses avoid receiving penalty points. So far courts have accepted statements pointing to the group of people who drive the vehicle regularly as a sufficient fulfillment of the requirement imposed by the Act. However, the Parliamentary Group for Road Traffic Safety believes that such statements should not be accepted because this leads to the situation in which "a substantial number of misdemeanor and offense cases remains unresolved." The proposed amendment is supposed to make it unacceptable for vehicle owners to make vague statements about drivers of their vehicles.

According to the principles of the Group operations, the amendment is to oblige vehicle owners, both entrepreneurs and private persons, to keep detailed registries of who they entrust their vehicles to and for how long. The amendment is also supposed to impose the requirement of storing such registries for two years and of sharing them with the authorized bodies upon request. If the amendment is passed and enters into force, entrepreneurs who let their employees or associates use company vehicles will be obliged to register data related to the operation of company vehicles on a daily basis. They will also be required to archive this data for the time period defined by the Act.

Such requirements will obviously generate costs and will be burdensome, particularly for small and mid-size companies which have several vehicles. Besides companies, the amendment will not be welcomed by those drivers who have got away with their offenses so far. They will no longer be able to avoid liability as members of an unspecified group of employees who, in theory, could use the car on the day when the offense was committed.

Rafal Salata, prawnik

This Newsletter is for general informational purposes only. It is not intended and shall not be treated as professional advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.

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