This article presents situations in which a loan granted by a partner to a company should be subject to civil law transaction tax or value added tax.
Loans as a form of financing a capital company
A loan granted by a partner to a capital company is a common form of financing. What are its effects under tax law? Should it be subject to civil law transaction tax or VAT? We have analysed both options below.
PCC – civil law transaction tax
As a rule, loan agreements are subject to the Act of 9 September 2000 on tax on civil law transactions and are taxed at 0.5% of the loan amount. However, it should be noted that, pursuant to Article 9(10)(i) of the PCC Act, loans granted by a partner (shareholder) to a capital company are exempt from tax.
This means that if a partner has granted a loan to a capital company, it will be neutral for tax purposes. However, it should be remembered that, according to the position of the tax authorities, the above situation applies only to partners who do not conduct business activity.
VAT – position of administrative authorities and courts
How should a loan granted by a partner who is also an entrepreneur be taxed? According to the tax authorities, such a loan is subject to the provisions of the VAT Act.
In numerous individual interpretations, the tax authorities have expressed the view that the granting of an interest-bearing cash loan constitutes a service provided for consideration and is subject to VAT. It is irrelevant whether the partner conducts business activity in the field of granting loans or whether the activity was incidental in nature.
However, administrative courts take a different approach in this regard. According to the judgment of the Supreme Administrative Court of 24 April 2018, ref. no. II FSK 1105/16, it must first be determined whether the partner granted the loan as part of their business activity. If so, the loan should be subject to VAT. If, however, the partner is not engaged in financing activities and the loan was incidental in nature, according to the Supreme Administrative Court, it should be subject to PCC tax.
VAT exemption for granting loans
The above does not change the fact that, pursuant to Article 43(1)(38) of the VAT Act, services related to the granting of loans are exempt from VAT. In view of the above, a partner who is also a VAT taxpayer will not be obliged to pay tax on a loan granted to a capital company.
In summary, the granting of a loan to a capital company by its partner will have tax consequences in terms of civil law transaction tax or VAT.
Summary of tax consequences
If the loan was granted by a partner who is not an entrepreneur, the provisions of the Civil Law Transactions Tax Act apply, according to which a loan granted by a partner to a capital company is exempt from tax.
However, if a shareholder of a capital company also runs their own business, the loan granted will be subject to VAT. It should be remembered that the VAT Act provides for a tax exemption in this respect.
Do you have additional questions about loans from partners and VAT? Be sure to contact us!
