Financing of a civil law partnership by partners, and PCC settlement
In economic terms, a civil law partnership is a legal entity separate from its partners. As a consequence, the company itself is a party to economic transactions, which means that it regulates all payments related to its activity. Therefore, partners often decide to finance a civil law partnership by depositing funds into the company's account. However, is such an action tax-free? We will try to answer this question.
Problem with financing the company
Why is the issue of financing a civil law partnership problematic and raise doubts? This is due to the structure of the civil law partnership. Pursuant to Art. 860 of the Civil Code, the partners, by signing the articles of association, undertake to strive to achieve a common economic goal by acting in a specified manner, in particular by making contributions. As a result, a civil law partnership is actually an agreement between partners. As a result, under civil law, a civil partnership does not have a separate personality or legal entity. The subjects of rights and obligations are the partners of the company, not the company itself. However, a civil law partnership is an economic entity because it has a tax identification number (NIP) and it is indicated as a taxpayer on VAT invoices.
It is also worth pointing out that pursuant to Art. 863 of the Civil Code, a partner may not dispose of a share in the partners' property or a share in individual assets. During the term of the partnership, he may also not claim the division of the joint property. As a result, the property of a civil law partnership is the property of all partners, which, however, is jointly owned, so that no shares can be separated. Therefore, each of the partners has the right to the entire property of the civil law partnership. The civil law partnership does not have separate assets. All assets and funds in a civil partnership are the property of the partners, not the company itself. However, this property is jointly owned.
Financing of a civil law partnership by transferring money from private property
Therefore, since a civil law partnership does not have separate assets and these are still assets owned by the partners, it might seem that the transfer of cash to the partnership is tax neutral, because the owner of the money does not change.
However, the tax authorities believe that in this case we are dealing with a subsidy to a civil law partnership, which makes it necessary to recognize and pay tax on civil law transactions.
As regards the PCC tax itself, first of all, it should be noted that both articles of association and amendments to these contracts are subject to taxation. Pursuant to Art. 1 clause 3 point 1 of the PCC Act, in the case of a partnership agreement, an amendment to the partnership agreement is considered to be:
- making or increasing a contribution, the value of which increases the company's assets or increases the share capital;
- a loan granted to the company by a partner;
- transfer of property or property rights by a partner to the company for free use.
In the opinion of the tax authorities, financing of a civil law partnership is the shareholder's donation of money for free use, as referred to in the above provision, which automatically results in the necessity to pay PCC.
As we can read in the interpretation of the Director of the Tax Chamber in Katowice of April 11, 2014, IBPBII / 1 / 436-20 / 14 / Asz:
„This contribution of cash for use by the company does not transfer ownership of the cash to the company. The money remains the property of the partners. The applicant believes that the top-up of the corporate account of a civil partnership not supported by a loan agreement, as well as not intended to increase the company's capital, and having a specific purpose and purpose, is not subject to tax on civil law transactions.
However, one cannot agree with the above position. It should be noted that the content of the supplement indicates that it is a temporary transfer of the funds of both partners at the company's disposal; for the use of these funds by the company.
Undoubtedly, therefore, in the presented facts, we will be dealing with the money given to the company by the partners for free use. In the light of Art. 1 clause 3 point 1 of the Act on tax on civil law transactions, such an activity - i.e. giving the company money to the company for free use - constitutes an amendment to the articles of association”. According to the view presented by the tax authorities, financing a civil law partnership from private funds of partners is an act of amending the articles of association, which is subject to taxation with PCC. Pursuant to Art. 4 point 9 of the PCC Act, the tax obligation in this case is borne by the partners of the civil law partnership. According to Art. 7 sec. 1 point 9 of the above-mentioned of the act, the tax rate is 0.5%. The tax base, in accordance with art. 6 sec. 1 point 8 lit.e of the Act, however, will constitute the annual value of free use, which is assumed to be 4% of the market value of the item or property right given for free use. Taxpayers are obliged, as provided for in Art. 10 sec. 1 of the Act, without the request of the tax authority, submit a declaration on tax on civil law transactions, according to the established formula, and calculate and pay the tax within 14 days from the date of the tax obligation, except for cases where the tax is collected by the payer. As a consequence, each partner in a civil law partnership is required to submit a PCC-3 declaration within 14 days from the date of co-financing of the company by one of them. Start a free 30-day trial period with no strings attached!
It should also be borne in mind that in accordance with Art. 5 sec. 2 of the PCC Act, if the tax obligation is imposed on several entities, either on the parties to the conversion agreement or partners of a civil partnership, jointly and severally obliged to pay the tax, these entities, parties to the conversion agreement or partners of the civil partnership, respectively.
A civil law partnership has two partners. One of them decided to subsidize the company's day-to-day operations and transferred PLN 10,000 to its bank account. In accordance with the presented position of the tax office, in this case the articles of association were changed, which results in the necessity to pay PCC. Both partners are obligated to pay. The tax rate is 0.5% of the value of the grant specified by the partners. In the case of co-financing the company, the responsibility for paying the tax rests jointly and severally with all partners of the company. As a result, the tax office can enforce both all and part of the tax on one of them. Summing up the article, first of all, we must point out that financing a civil partnership with private funds of partners is not a tax neutral event. Shareholders must be aware that in such circumstances the tax office may demand payment of PCC, treating such a subsidy as an amendment to the articles of association in the form of free funds for the company's needs.