Consistent case law on cash pooling

by Maciej Wilczkiewicz

9 December 2016 (update: 12 December 2019)

More and more often corporate groups use cash-pooling arrangements as a tool for effective management of financial resources. Although cash-pooling arrangements have been used in business practice for a long time, they have still not been regulated in detail in civil or tax law. The lack of such regulations has given rise to many doubts related to cash pooling in terms of taxes. One of them was about whether interest disbursed under cash-pooling arrangements is subject to limitations set forth in the regulations on thin capitalisation.

 
The prevailing opinion among the Polish tax authorities is that cash-pooling arrangements are loan agreements in the meaning of the thin capitalisation regulations.  Consequently, including interest disbursed under cash-pooling arrangements in tax-deductible costs is subject to the limitations set forth in the thin capitalisation regulations.

Initially, administrative courts used to solve disputes concerning that issue in favour of taxable persons. The courts emphasised that the substance of a loan agreement in the meaning of the thin capitalisation regulations is a commitment to transfer the ownership of specific funds to another entity specified in the agreement. But cash-pooling arrangements do not contain any such commitment (e.g. the Provincial Administrative Court (PAC) in Poznan in its ruling of 9 September 2014, file no. I SA/Po 156/14).

It can be noticed, however, that administrative courts have changed their line of rulings. The change was initiated by the SAC's ruling of 30 September 2015 (file no. II FSK 3137/14) and confirmed by subsequent rulings (of 13 July 2016, file no. II FSK 1706/14 and of 4 August 2016, file no. II FSK 1097/16).

In the last of the rulings cited above the SAC takes the view that the accounts settled within intra-group liquidity management structures demonstrate the characteristics of loans. This is because cash-pooling arrangements actually aim at providing financial means to the companies within the group and enabling the lender companies to achieve benefits in the form of interest. Consequently, accounts settled under cash-pooling arrangements should be treated as loans, and as such they are subject to the thin capitalisation limitations.

 
At present, in consideration of a large number of similar rulings passed by the SAC, the case law concerning the matter in question can be regarded as established.