Transactions between spouses conducting separate activities, how to settle?

It is common for spouses to conduct business in the form of various types of companies. The spouse may also cooperate in a sole proprietorship registered for one of the spouses. However, it is not a rule that a marriage is linked by a common business, and it is quite common to conduct separate activities, in which transactions may be concluded between the spouses. In this article, we will discuss transactions between spouses conducting separate economic activities and their settlement - read on!

Joint property of spouses - what is worth knowing?

At the time of entering into marriage between the spouses, joint property (statutory joint property) is established by law. It means joint community, i.e. joint-free and includes property acquired during its lifetime by both spouses or by one of them, up to the so-called joint property. Art. 34 of the Family and Guardianship Code

"Items of ordinary household appliances used by both spouses are covered by the statutory commonality also in the event that they were acquired by inheritance, bequest or donation, unless the testator or the donor decided otherwise".

The joint property includes, in particular, the remuneration received for work and income from other gainful activities of each spouse, income from joint property, as well as from the personal property of each spouse, or funds accumulated in the open or employee pension fund account of each spouse. Art. 34 of the Family and Guardianship Code

"Each of the spouses is entitled to co-own the property and to use it to the extent that is compatible with the co-ownership and use of the property by the other spouse."

Property items that are not covered by the statutory community belong to personal property - separate for each spouse.

If the spouses sign a prenuptial agreement before marriage, no joint property will arise as a result of the marriage. An intercourse is an agreement establishing property separation between them.

Transactions between spouses conducting separate economic activities on the basis of VAT

Settlement of the transfer of property between spouses conducting their own business activities in relation to VAT depends on the joint property in the marriage. If there is joint property between the spouses, they can freely exchange assets in their companies. The transfer of property from a sole proprietorship of one spouse to a sole proprietorship of the other spouse does not have any tax consequences in terms of VAT.

This position was confirmed in the judgment of the Supreme Administrative Court of April 4, 2018, file ref. no.I FSK 887/16. It revoked the judgment of the Provincial Administrative Court in Gliwice of October 23, 2015, file ref. III SA / Gl 785/15, on a complaint against an individual interpretation of the Minister of Finance of December 24, 2014.

The subject of the individual interpretation were, inter alia, asking the applicant whether the transfer of assets from the husband's activity to the applicant's activity is neutral under the VAT Act due to the existing marital cohabitation and whether the lack of physical payment for the assets purchased from the husband obliges the applicant to correct the deducted amount of tax resulting from this invoices documenting the purchase of assets from the husband, in accordance with Art. 89b of the VAT Act.

The Minister of Finance, in response to the request submitted by the applicant under the individual interpretation, considered the applicant's position that the transfer of assets from the husband's activity to the applicant's activity neutral under the VAT Act due to the existing marital cohabitation. The Minister of Finance also disagreed that the applicant was not obliged to correct the VAT in the event of non-payment for the assets purchased from her spouse. The same position, when considering the applicant's complaint, was taken by the Provincial Administrative Court, therefore she appealed to the Supreme Administrative Court, which confirmed her position and thus quashed the previous judgment of the Provincial Administrative Court.

„In this state of affairs, the autonomy of tax law does not prevent the conclusion that the transfer of goods from the husband's economic activity to the spouse's economic activity, carried out as part of these activities, when the spouses share the joint property existing on the basis of the provisions of the Family and Guardianship Code, does not constitute payable delivery of goods and is not subject to VAT. In the described future event, there is no possibility of paying the remuneration, there will be no gain, there will be no increase in the 'resources' of the taxpayer's husband, because the spouses are united by the joint commonality and the fact that they conduct separate economic activity as spouses does not change anything”.

The Supreme Administrative Court therefore held that in a situation where there is a statutory joint property between spouses, all transactions concluded between spouses conducting separate economic activities cannot be for pecuniary interest. Then it is not possible to settle the amounts due between them, because one of them cannot pay the remuneration to the other spouse with funds covered by the statutory commonality for the assets included in its composition.

The aforementioned judgment was a breakthrough, because so far the tax authorities presented different jurisprudence. The judgment of the Supreme Administrative Court of 4 April 2018 favorably applies to transactions concluded between spouses under the tax on goods and services, which initiated a change in the jurisprudence in the context of transactions concluded between spouses conducting their own business activities.

Sale and transfer of property between spouses in joint and the Family and Guardianship Code

The dispute between taxpayers and tax authorities on taxation with VAT of shifting assets as part of separate business activities by spouses remaining in joint property has been going on for a long time. We emphasize that, in accordance with the provisions of the Family and Guardianship Code, it is not possible to distinguish between the components of the joint property those that belong to each spouse separately, which means that it is not possible for one of the spouses to sell or give to the other the indicated component of property covered by joint property. without excluding it from the common property.

Regardless of the cited law, under the Family and Guardianship Code, jurisprudence has been dominant for years, indicating that transactions between spouses remaining in joint property are subject to tax on goods and services. The favorable judgment of the Supreme Administrative Court of April 4, 2018 described in the previous paragraph gives hope that the case law in this case will remain favorable to taxpayers.

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Transactions between spouses conducting separate activities - tax consequences in the case of joint property

Spouses who have not entered into a so-called intercourse are free to transfer assets from one activity to another. The transfer of assets between the companies of the spouses remaining in joint property does not constitute a sale against payment, and therefore does not generate income from economic activity. The transfer of a fixed asset between the spouses' companies can be documented with a transfer protocol containing in particular the initial value, depreciation method and the sum of depreciation write-offs made so far.

When transferring an asset from the company of one spouse to the activity of the other, it is not necessary to adjust the depreciation write-offs on fixed assets.

This position was presented in the individual interpretation of the Director of the Tax Chamber in Łódź of February 15, 2017, No. 1061-IPTPB1.4511.1050.2016.1.MM:

„In the case of donation of fixed assets - donation as one of the forms of disposal sets the end date for depreciation write-offs. However, it does not require any corrections to them in the tax revenue and expense ledger.Write-offs accrued over the period of using the asset for the purposes of the activity remain a tax-deductible cost for the donor. The last depreciation write-off made from the initial value of the depreciated fixed asset, which is then donated, can be made for the month in which the donation was made”.

The spouse, after entering it into the register of fixed assets in his activity, may depreciate the received asset on a continuation basis, i.e. taking into account the method and depreciation write-offs made so far.

Example 1.

Mrs. Jolanta and Mr. Maciej are married. Each of them runs their own sole proprietorship. In the register of fixed assets in her company, Mrs. Jolanta has a computer set worth PLN 15,000 (fully depreciated), which she decided to pass on to her spouse. Mr. Maciej wants to introduce a computer set to fixed assets in his company. Will there be income from receiving the asset? Can Mr. Maciej amortize a computer set in his activity?

Mrs. Jolanta, when transferring a fixed asset to the activity of her spouse, should delete an asset from the fixed assets register. Mr. Maciej can then introduce a computer set to the register of fixed assets in his activity. However, he is not entitled to make depreciation write-offs of the property received from his spouse, because it has been fully depreciated in her company.

Therefore, if the spouses share joint property, the transfer of assets between their sole proprietorships does not have any tax consequences under the Personal Income Tax Act.

Transactions between spouses conducting separate activities - tax consequences in the case of separation of property

The signing of an intercourse establishing property separation between spouses is associated with the lack of tax privileges in transactions concluded between spouses who have separate economic activities, as is the case with joint property.

The free transfer of an asset previously used as part of the business activity of one spouse to the activity of the other spouse gives rise to tax consequences on the basis of PIT. In such a case, income is generated on the side of the spouse who receives the assets free of charge. This income, however, benefits from tax exemption. Art. 21 sec. 1 point 125 of the Personal Income Tax Act

"The following are free from income tax: the value of benefits in kind and other gratuitous benefits, calculated in accordance with Art. 11 sec. 2-2b, received from persons included in I and II tax groups within the meaning of the provisions on tax on inheritance and donations, subject to paragraph 2. twenty".

Therefore, the value of benefits in kind and other gratuitous benefits received from persons included in tax groups I and II is exempt from personal income tax. Such activity is also not subject to inheritance and donation tax, as long as it is notified to the head of the tax office within 6 months of the donation acquisition.

Under VAT, the transfer of assets from the activity of one spouse to the activity of the other is taxed.

Summing up, we can conclude that the taxation of transactions, both in the case of transferring the property, and the sale between spouses conducting separate economic activities, depends on the possession of joint property. The statutory community of property regime protects spouses from the taxation of shifting assets from one company to another. In the event that the given assets are not included in joint property, it is necessary to tax the transaction under VAT. Payment of personal income tax is still avoided, despite the separation of property, by taking advantage of the exemption related to the value of benefits in kind and other gratuitous benefits received from persons included in tax groups I and II.