General information about asset deals in Poland.
- General remarks as to the asset deals
There are two types of asset deals:
1) acquisition of specific assets which are not organised for business activity purposes.
2) acquisition of entreprise (fonds de commerce).
The acquisition of specific assets concerns a regular sale agreement of separate single assets which are not organised (functionally and financially) for business purposes.
The acquisition of enterprise concerns the assets defined as an organised collection of tangible and intangible elements, intended for conducting business activity which includes in particular (Article 551 of the Polish Civil Code):
- A designation distinguishing the enterprise or its separated parts (the name of the enterprise).
- The ownership of real estate or movables, including equipment, materials, goods and products, and other real rights to real estate or movables.
- Rights under contracts for the tenancy and lease of real estates or movables and rights to use real estate or movables under other legal relationships.
- Receivables, rights attached to securities, and cash.
- Concessions, licenses and permits.
- Patents and other industrial property rights.
- Copyrights and neighbouring rights.
- Secrets of enterprise.
- Books and documents related to the business activity.
In general, an enterprise covers all assets of a business entity. However, the particular assets can be excluded therefrom in the acquisition agreement (see: Article 552 of the Polish Civil Code). Thus, the assets selected by the parties to the agreement can be also considered as an enterprise, if they are financially and functionally organised for business activity purposes.
Correct classification of the subject matter of an asset deal, that is, enterprise or separate assets is of decisive importance for the purchaser’s and seller’s liability regarding civil/commercial employment and public (tax) relationship. Please note that the discussed deal can be requalified within the relevant administrative or civil proceeding.
- Transfer of an enterprise
A transfer of an enterprise requires a written form with notarized signatures except for the transfer of real estate which requires a notarial form (Article 751 of the Polish Civil Code). In general, an agreement on enterprise transfers covers all relevant assets with some specific reservations. The discussed transfer is not considered as a universal succession but as a singular one. Hence, the obligations (debts) are not included in the transaction (operation) (Article 519 of the Polish Civil Code). For example, as far as the contracts with clients are concerned, the acquirer of assets will need clients’ consent to enter thereto. It should be stressed that such a transfer requires the detailed analysis of the terms and conditions of the contract being a subject matter of the assets deal.
The acquirer of an enterprise is liable jointly and severally with the transferor for the transferor’s obligations related to running the enterprise, unless at the time of acquisition, the acquirer was not aware of those obligations despite having used due care.
The acquirer’s liability is limited to the value of the acquired enterprise as of the moment of acquisition and according to the prices as of the time the creditor is satisfied. This liability cannot be excluded or limited without the creditor’s consent (Article 554 of the Polish Civil Code).
Thus, it is possible to limit or exclude the acquirer liability on the basis of the creditor’s consent.
The acquirer may seek the recourse against the transferor in case he satisfies claims resultant of the discussed joint and several liability.
Moreover, the acquirer’ s liability can be partially neutralised by the specific terms and conditions of the agreement on an enterprise transfer. In fact, it can include the clause of transferor’s submission to the voluntary execution up to the specified amount of money under Article 777 par. point 5 of the Polish Civil Procedure Code (a notarial form). The transferor could be obliged to produce the bank guarantee, insurance policy or other security as a registered pledge on movables or a mortgage.
It should be stressed that the acquirer’s liability for tax arrears can be neutralised or even excluded, in case of the transferor producing the relevant certificate confirming the lack or the amount of the transferor’s tax arrears (procedure specified in Tax Ordinance art. 306g). In case of such an event, the acquirer will not be liable for tax arrears of the transferor that were not indicated in the certificate, with a reservation that the enterprise transfer agreement is executed within 30 days as of the issuance of the certificate. Otherwise the acquirer may be liable for the transferor’s tax arrears arising after issuance of the certificate.
Corporate income tax (CIT) effects for the acquirer
Acquisition of an enterprise or an organised part thereof may generate goodwill, which constitutes an excess of the purchase price for the enterprise or the organised part thereof over the market value of its assets. Goodwill is subject to amortisation.
Please note that in the event the transaction is considered as a sale of separate assets and not an enterprise or an organised part thereof, the goodwill cannot be generated. The acquired assets are generally subject to amortisation if their initial basis exceeds PLN 3,500. Regarding the assets with a lower initial basis, the expenditures for acquisition of the assets may be recognised as deductible revenue-earning costs upon acquisition.
- VAT tax
According to art. 6 point 1 of the Act on VAT, sale of an enterprise or an organised part thereof is not subject to VAT tax.
Please note that in the event the transaction is considered as a sale of separate assets and not an enterprise or an organised part thereof, assets constituting goods or services under the VAT Act are subject to VAT at the basic rate (23%), unless a reduced VAT rate or VAT exemption is available.
- Tax on civil law transactions
Sale of an enterprise or an organised part thereof is subject to the tax on civil-law transactions (TCLT) under general rules, i.e. the sale of each asset included in the enterprise or an organised part thereof is subject to tax (at 1% or 2% of the market value, depending on the type of asset).
Please note that TCLT is considered to be final (it may not be subject to amortisation and may not be returned in any form). It should be stressed that all operations which are not subject to VAT are subject to TCLT.
Where an employing establishment or a part thereof is transferred to another employer, such employer shall, by operation of law, become a party to the previous employment relationship, with some specific reservations (Article 231 of the Polish Labour Code). It should be stressed that the interpretation of the term of employing establishment is broader than the one of an enterprise. Any transfer of assets linked to the employment activity can be considered as the transfer of an employing establishment e.g. the industrial equipment or specific set of contracts with clients. Therefore, the purchaser of the discussed assets will enter into the employment relationship of the former employer, by operation of law.
The former and the new employer shall be jointly and severally liable for the duties resulting from the employment relationship which originated before the transfer of part of the employing establishment to the new employer.
It should be noted that this liability concerns the duties resulting from the employment relations that existed at the date of transfer. If the employment agreements are terminated before the date of the transfer and the notice period lapses before the date of the transfer, the new employer will not, in general, have any obligations towards the employees made redundant. In particular, it would be the former employer who would be solely obliged to pay severance payments under the Act on collective dismissals.
However, if the former employees are connected with the business being the subject of transfer, and they claim successfully in court that the termination was unjustified or unlawful, there is a risk that they will additionally claim that their employment relationships should be continued with the new employer (if the court orders reinstatement – the employee may claim that if their contracts had not been terminated they would automatically have been transferred to the new employer).
If contracts terminate after the transfer as a consequence of actions undertaken before the transfer (termination letters are delivered before the transfer), both parties to the transfer agreement (former and new employer) will be jointly and severally liable for any obligations that arose in connection with the terminations.
In the event that no trade union organizations operate at the employing establishment, the existing and the new employer shall notify their employees in writing of the expected time of transfer of the employing establishment or a part thereof to another employer, the reasons therefore, the legal, economic and social consequences thereof for the employees, as well as any intended actions relating to the conditions of employment of employees, including without limitation the conditions of work, remuneration and requalification; the information should be provided no later than 30 days prior to the expected date of transfer of the employing establishment or a part thereof to another employer.
Please note that the transfer of an employing establishment or a part thereof to another employer cannot be considered as a reason justifying termination of an employment relationship by notice by an employer.
However, the employer (the former employer before the transfer or the new employer after the transfer) may terminate the contract or current conditions of work and pay for economic, technical or organizational reasons.
Furthermore, within two months of the transfer of an employing establishment or a part thereof to another employer the employee may, without notice, upon seven-day advance notification, terminate the employment relationship. The termination of the employment relationship in accordance with the above procedure shall have the same effects on the employee as those provided for in labour law in relation to termination of employment relationship by the employer by notice. It is worth noting that such termination of the employment relationship may involve the new employer’s duty to pay severance under the Act of 13 March 2003 concerning the particular rules for terminating the employment of a worker for reasons for which he/she is not responsible. In particular, further to the Supreme Court’s judgment dated 23 February 2010 (II BP 11/09), the employees have the right to demand severance pay only if the reason for their termination was a substantial and detrimental change to their employment conditions.