On 5 August 2020, a draft law concerning so-called “company groups” was published. The new law amends the current Commercial Companies Code (KSH), and introduces certain new institutions aiming at strengthening the position of supervisory bodies and their powers within a capital group.

The draft law covers the following issues, i.a.,:

  1. It introduces a definition of “company group” as a group of a dominant company and its subsidiaries having common economic strategy (company group interest) allowing the dominant company to exercise unified control over its subsidiaries.
  2. The concept of company group interest is supported by the concept of “binding instructions”, which can be given by the dominant company to its subsidiaries.
  3. To secure the position of board members of the subsidiaries, a change in the area of corporate responsibility is also foreseen - if the binding command is executed.

Public consultations will last until mid-September, and the law is expected to enter into force in early 2021.

Tax impact

Although the draft law focuses on the amendments to the Commercial Companies Code, the tax aspects of the new law should not be overlooked. These concern, in particular, analysis of settlements from the transfer pricing (TP) perspective, and recognition of certain costs as tax-deductible, if incurred by one company, but in view of securing the group’s interest, or upon executing a “binding command”. In terms of TP, although internationally the arm’s length principle concept is evolving and opening up for analysis of the group’s interest, under Polish law, board members of a company are obliged to sign – under fiscal and penal sanctions - a statement on the arm’s length level of transactions, and prepare local transfer pricing documentation on a stand-alone basis.

In practice, it may be difficult to put the group’s interest above a subsidiary’s one and be in line with TP requirements. As a result, it may be crucial to analyze the impact of the new law on group settlements to develop a robust approach to reconcile these two law regimes.