Judgment: “exit tax” does not apply to private property of natural persons

In accordance with the provisions of the PIT Act:

• taxation with the tax on income from unrealized profits (“exit tax”) is subject to, inter alia, transfer of an asset outside the territory of Poland, as a result of which Poland loses the right to tax income from the sale of this asset, while the transferred asset remains the property of the same entity, however
• tax is also applicable to the transfer of property, free of charge, to another person/entity located on the territory of Poland

– if, as a result of this transfer, Poland loses the right to tax income from the sale of this asset.

The taxpayer is a Polish tax resident. She planned to donate shares (worth over PLN 4 million) to her son who is not a Polish tax resident. As a result of this transfer, Poland will lose the right to tax income from the sale of this asset.

The taxpayer asked the Director of NFI whether such a transfer would be subject to tax on income from unrealized profits (“exit tax”)?

According to the taxpayer, such an obligation will not arise. The authority did not agree with her position.

The District Administrative Court in Bydgoszcz revoked the interpretation. The DAC indicated that taxation will take place with regard to components related to one’s business activity. This interpretation is also supported by the conclusions from the interpretation of EU regulations (the ATAD directive).

This decision was upheld by the Supreme Administrative Court.

The Supreme Administrative Court agreed with the District Administrative Court, emphasizing that this tax is to apply to legal persons (entities) “as a rule”. Some Member States introduce regulations in the field of taxation of natural persons, which – in the view of EU law and the case law of the CJEU – is admissible, but also subject to a number of conditions (in particular, due to treaty freedoms). Therefore, application of tax to natural persons must be related to their economic activity. Hence, the District Administrative Court rightly ruled that the tax will not apply to the personal property of a natural person.

Judgment of the Supreme Administrative Court of January 14^th, 2022, file ref. no. II FSK 12/21