The transaction involved L. Sp. z o.o., a Polish operating company belonging to the L. Capital Group, and related group entities that successively became the formal legal owners of the ‘L.’ trademark following a series of steps within the group in 2014. These steps included a contribution in kind of the trademark, its sale, the subsequent transformation of the acquiring company into a partnership and its subsequent liquidation. From September 2015 to August 2016, L. sp. z o.o. paid licence fees to the related entity B. sp. z o.o. sp.j. for use of the trademark, deducting these fees as tax-deductible costs.
The tax authorities took the position that the licence fees did not reflect arm’s length conditions within the meaning of Article 11 of the Corporate Income Tax Act, as it was in force at the time. Based on a functional analysis, the authorities concluded that the licensor entity performed only administrative and legal protection functions in relation to the trademark, while L. sp. z o.o. remained the economic owner, performing the key value-creating functions and bearing the relevant risks. The authorities therefore treated the licence as equivalent to low-value administrative services and used the TNMM to estimate arm’s-length remuneration by reference to comparable routine service providers. Consequently, they reduced the deductible costs and increased the taxable income by reclassifying the licence fees as excessive remuneration.
In its appeal, L. sp. z o.o. argued that the authorities had exceeded their statutory powers. The company maintained that Article 11(1) of the Corporate Income Tax Act only permits adjustments to the terms of transactions actually concluded between related entities, and does not allow the authorities to disregard the licence and replace it with a different transaction. The company also challenged the authorities’ reliance on OECD transfer pricing concepts as an independent legal basis, arguing that the recharacterisation had effectively introduced rules that had only been explicitly enacted with effect from 1 January 2019.
Judgment
The Supreme Administrative Court allowed the appeal and overturned both the Provincial Administrative Court’s judgment and the tax assessment.
The Court held that, in the version applicable to the disputed period, Article 11(1) of the Corporate Income Tax Act did not authorise the tax authorities to recharacterise or replace a controlled transaction on the assumption that independent entities would not have entered into it. The provision only permitted the disregard of non-market conditions affecting the price or terms of the transaction actually carried out. The court emphasised that the OECD Transfer Pricing Guidelines could not serve as a substitute for a clear statutory basis, and that extending Article 11 through purposive interpretation would violate the constitutional principles of legal certainty and the exclusivity of statutory taxation. The power to disregard or replace a transaction was introduced later, in 2019, through Article 11c(4), and could not be applied retroactively. As the authorities’ entire adjustment was based on an impermissible recharacterisation of the licence agreement, the Supreme Administrative Court annulled the assessment.
This judgment is the leading decision in a series of related cases concerning the same group and trademark structure. The reasoning of the Supreme Administrative Court was subsequently applied by the Provincial Administrative Court in four parallel judgements, which annulled comparable assessments for other group companies and tax periods (I SA/Po 61/24, I SA/Po 62/24, I SA/Po 708/23, and I SA/Po 719/23).
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