A loan between business entities

Service-Tax

Virtually every entity running a business is going through a financially "worse" period in the company. In order to survive it, the solution is credit or loan. Entrepreneurs very often grant loans to each other as part of business cooperation. However, entrepreneurs are not always aware of the tax implications of this. Is a loan between business entities possible? Let's check it out!

Loan - definition

Within the meaning of the Civil Code, by a loan agreement, the borrower undertakes to transfer to the taking of a certain amount of money or items marked only as to the species, and the taker undertakes to return the same amount of money or the same number of items of the same species and quality. A loan therefore includes contracts for both money and other species specific.

A loan between business entities and the tax on civil law transactions

Pursuant to the Act on Tax on Civil Law Transactions, this tax is subject to both the loan agreement itself and its amendment, provided that it increases the tax base.

The tax obligation arises already at the moment of performing a civil law transaction, i.e. in practice already at the moment of concluding the contract. Thus, the very moment of the actual payment of the loan between the entities conducting the business will be irrelevant. This is important in the case of contracts concluded, for example, under the condition precedent, where the obligation to pay the tax will arise, even though the actual payment of funds may be significantly delayed.

However, the Act on Tax on Civil Law Transactions provides for situations in which a civil law activity falling within the scope of the Act is not subject to taxation with this tax. Pursuant to Art. 2 point 4 of the above-mentioned Acts are not subject to tax on civil law transactions, if at least one of the parties is:

  1. subject to tax on goods and services,
  2. exempt from tax on goods and services, with the exception of:
    • sale and exchange contracts, the subject of which is real estate or its part or the right of perpetual usufruct, cooperative ownership right to the premises, the right to a single-family house in a housing cooperative or the right to a parking space in a multi-car garage or participation in these rights,
    • contracts for the sale of shares and stocks in commercial companies.

It should be noted, however, that the fact that the parties to this agreement have the status of a VAT taxpayer does not decide about the exclusion from taxation with tax on civil law transactions, but only the fact that at least one of the parties is subject to tax on account of this specific activity. on goods and services.

To sum up, if the loan agreement was included in the scope of the VAT Act, the above activity benefited from the exemption from taxation with tax on civil law transactions, in accordance with Art. 2 point 4 of the Act on tax on civil law transactions. The exclusion of the loan agreement between entities conducting business activity means that the taxpayer is not obliged to submit PCC declarations.

This position is confirmed by the tax authorities, an example of which is the letter of the Director of the Tax Chamber in Łódź of 27 May 2010, no.IPTPB2 / 436-3 / 11-2 / KK, in which we can read:

"(...) The facts presented in the application show that the Applicant is a partner of the Limited Liability Company. On March 14, 2011, this company granted the Applicant (its shareholder) a loan, which will be repaid in 72 monthly installments. borrower) and the limited liability company (lender) are taxpayers of value added tax and are subject to legal regulations under the VAT Act.

To sum up, if the loan agreement was included in the scope of the VAT Act, the above activity benefited from the exemption from taxation with tax on civil law transactions, in accordance with Art. 2 point 4 of the Act on tax on civil law transactions. When the loan agreement is excluded, the Applicant is not obliged to submit PCC declarations. (...) '

Loan for consideration

Pursuant to the VAT Act, granting a loan for remuneration (interest in the form of interest) as part of business activity falls within the scope of activities subject to the provision of services against payment (Article 5 (1) (1) of the VAT Act). According to Art. 8 sec. 1 of this Act by providing the services referred to in Art. 5 sec. 1 point 1 shall be understood as any service provided to a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods within the meaning of art. 7 of the VAT Act. In this sense, a loan between entities conducting business activity constitutes a benefit to another entity, consisting in making the capital available for the period specified in the contract. Therefore, it is an activity that meets the criteria for the provision of services for consideration, which is in principle subject to VAT, under which the remuneration is the interest received for the provision of services.

Such a position was confirmed by the Director of the Tax Chamber in Warsaw in a letter of April 12, 2012, No.IPPP1 / 443-145 / 12-2 / Igo, which reads:

"(...) Activities consisting in granting interest-bearing cash loans constitute the provision of services for consideration and are subject to tax on goods and services. Granting loans by a taxpayer of value added tax meets the conditions for recognizing these activities as taxable, regardless of the frequency and purpose of granting them or the status of the buyer (…). "

Nevertheless, pursuant to Art. 43 sec. 1 point 38 of the VAT Act, the services of granting loans or cash loans and intermediation services in the provision of loans or cash loans, as well as the management of loans or cash loans by a lender or lender, are exempt from VAT. Only interest on loans granted should be shown as tax-exempt in the VAT declaration. It is the interest, in the case of granting loans, that constitutes the amount due on account of the sale, and therefore the turnover being the taxable amount. This position was also confirmed by the Director of the Tax Chamber in Bydgoszcz in a letter of 23 May 2013, no. ITPP2 / 443-191 / 13 / AK, according to which:

"(...) performed loan granting activities constitute services within the meaning of Article 8 (1) of the Value Added Tax Act, subject to taxation pursuant to Article 5 (1) (1) of the Act, with the exemption from of tax pursuant to Article 43 (1) (38) of the Act. loans, i.e. the amount of interest (...). "

The tax obligation for the provision of loan services arises on the general principles set out in the provisions of art. 19a paragraph. 1 of the VAT Act. This means that the tax obligation arises when such service is performed, i.e. in this case the payment of interest or other receivables.