Sales between spouses (wife's company and husband's company)

Service-Tax

Polish law allows separate companies to be run by both spouses - but does it allow sales between spouses (the wife's company and the husband's company)? If the wife and husband run separate economic activities, can there be a sale / purchase transaction between their companies on general terms? Let's check what the regulations and tax authorities say!

Running separate activities by spouses

Both the wife and husband can be entered in the business activity register separately - as separate economic entities. Importantly, it does not matter whether there is joint property between the spouses or not.

Pursuant to the Personal Income Tax Act, spouses are also separate taxpayers, and the law only allows (and does not require) joint settlement.

Art. 6 sec. 1 updof

"Spouses are taxed separately from their income."

Therefore, it is possible for spouses to conduct separate activities.

Sale between spouses

In practice, an event may occur where the wife's company wants to buy services / goods from her husband's company - or vice versa. If the spouses run separate activities, is this possible? Yes. There are no obstacles to make a sale transaction between spouses, and more precisely between their companies.

How to tax sales between spouses (wife's company and husband's company)?

Settlement of sales / purchases will be carried out on general terms, as with other companies. As a result, the seller (e.g. a husband-run business) invoices and taxes the benefit, and the buyer (e.g., a wife-run business) pays the transaction and recognizes the expense as operating expenses. Of course, the condition for such a settlement is the necessity to make a purchase actually for business purposes (related to the conducted activity).

Important!

An expense may be recognized as tax deductible if the following conditions are cumulatively met:

  • there is a cause and effect relationship with the income or the preservation / securing of its source;
  • is properly documented;
  • is not included in the catalog of costs listed in Art. 23 sec. 1 updof.

Certain doubts arise in relation to the above-mentioned conditions. In the catalog of costs listed in Art. 23 sec. 1 point 10 indicated that the following are not considered tax deductible costs:

"the value of the taxpayer's own work, his spouse and minor children, and in the case of operating in the form of a company that is not a legal person - also the spouses and minor children of the partners of that company".

And here the doubts arose whether, for example, the service provided by the husband's company to the wife's company could constitute a tax expense in the wife's company? Well, in order to answer this question, it is necessary to analyze the jurisprudence of tax authorities that has arisen on this subject.

Sales between spouses and the jurisprudence of tax authorities

The issue of making sales between spouses' companies has been the subject of many applications for a tax interpretation.

In 2012, an individual tax case was filed by a taxpayer running a business in the field of kindergarten, who wanted to purchase services from her husband's company running a sole proprietorship in the field of renovation, construction and cleaning services.

The Director of the Tax Chamber in Łódź, in the individual ruling of March 12, 2012 (reference number PTPB1 / 415-18 / 12-2 / AG), indicated:

“According to Art. 23 sec. 1 point 10 of the Personal Income Tax Act is not considered a tax deductible cost of the taxpayer's own labor value, his spouse (...).

The above provision excludes the value of the taxpayer's own work, his spouse and minor children from tax deductible costs. The term "value of work" used in it should be understood as the value of any type of work, regardless of whether the work is performed on the basis of an employment contract, civil law contract (mandate contract, contract for specific work) or without a legal basis (non-contractually ). However, this concept should be treated strictly, which means that here it is necessary to separate - for the purpose of not including tax deductible costs - components of remuneration for work performed from additional benefits on the part of the employer - those that do not affect the value of one's own work (i.e. the employer incurred regardless of the employee's contribution, e.g. the equivalent for tools, health and safety benefits). It does not matter whether there is joint or separate property between the spouses (...)

Considering the future event presented in the application and the above-mentioned provisions of tax law, it should be stated that in a situation where the Applicant and her husband conduct separate economic activities, and the husband, as part of his business, will provide services to the kindergarten run by the Applicant, such services are it should not be classified as the spouse's own work, within the meaning of the Personal Income Tax Act. It is a service provided by a separate economic entity - a separate entrepreneur. (...) "

In 2013, the same tax authority maintained its position, issuing a tax interpretation on June 12, 2013, ref. IPTPB1 / 415-182 / 13-4 / KSU regarding the question of the Taxpayer who runs her own business in the field of renting office equipment and in this respect sublets the furniture belonging to her company to her husband's company, for which she issues appropriate invoices. The interpretation reads:

“(...) Bearing in mind the description of the facts presented in the application and the applicable legal regulations, it should be stated that in a situation where the Applicant and her husband conduct separate business activities, and the husband, as part of his business, will provide furniture rental services to the Applicant's company, these services should not be classified as the work of the spouse's own work within the meaning of the Personal Income Tax Act. These are services provided by a separate economic entity - a separate entrepreneur. In such a situation, the value of the service provided by the husband's company to the company run by the Applicant may constitute her tax deductible costs, reducing the income obtained from business activity, if the incurred expenditure meets the conditions set out in Art. 22 sec. 1 above of the Act, while meeting the other conditions, in particular those resulting from Art. 24d of the Personal Income Tax Act, added under Art. 3 point 5 of the Act of November 16, 2012 on the reduction of certain administrative burdens in the economy (Journal of Laws of 2012, item 1342) (...). "

The tax authority dispelled the doubts by confirming that in the case of a sale between the spouses' companies, a real, documented and justified business transaction takes place, which will be subject to settlement on general terms.

When making sales between spouses' companies, avoid price reductions

Of course, there are certain conditions for accepting the settlement of sales transactions between separate entities of the spouses:

  1. correct documentation (invoice),
  2. applying the correct price.

Taxpayers have no doubts about documenting - but what is the "correct price"? The point is that transactions between spouses' companies should take place on the same terms as with other entities.Therefore, you should avoid undercutting prices. Mainly due to Art. 25 sec. 1, 4, 5 and 6 updof and art. 32 sec. 1 and 3.

Pursuant to Art. 32 sec. 1 and 3 of the VAT Act:

1. "Where there is a connection between the buyer and the supplier of goods or the service provider, as referred to in paragraph 2, and where the remuneration is:

  • lower than the market value, and the buyer of the goods or services does not have, in accordance with Art. 86, art. 86a, art. 88 and art. 90 and with the regulations issued on the basis of art. 92 sec. 3 full right to reduce the amount of tax due by the amount of input tax,
  • lower than the market value, and the supplier of goods or service provider does not, in accordance with Art. 86, art. 86a, art. 88 and art. 90 and with the regulations issued on the basis of art. 92 sec. 3 full right to reduce the amount of tax due by the amount of input tax, and the supply of goods or services is tax-exempt,
  • higher than the market value, and the delivering goods or service provider does not, pursuant to Art. 86, art. 86a, art. 88 and art. 90 and with the regulations issued on the basis of art. 92 sec. 3 of the full right to reduce the amount of tax due by the amount of input tax

- the tax authority determines the tax base in accordance with the market value, if it turns out that this relationship influenced the determination of the remuneration for the supply of goods or services. (...) "

3. "The family ties referred to in section 2 shall be understood as marriage and kinship or affinity up to the second degree".

It is therefore possible for the spouses to conduct separate companies and carry out business transactions between them, and may be subject to general rules, provided that certain conditions are met. However, because in the case of such transactions their individual nature is important, it is worth applying for an individual tax interpretation in your case.