This article will answer the following questions:

• How should the term organised part of an enterprise be understood and what does it have to do with VAT?
• Is the sale of an organised part of an enterprise subject to VAT? 
• What is the position of courts as to the process of verifying whether a given taxpayer deals with an organised part of an enterprise?

Pursuant to the relevant Act, the transaction of selling an organised part of an enterprise is not subject to VAT. Unfortunately, the definition of it is so broad that, in practice, taxpayers often find it hard to clearly determine whether what they intend to sell constitutes an organised part of an enterprise or not. So how is this interpreted by tax authorities and courts? 

According to the statutory definition, an organised part of an enterprise is a set of tangible and intangible assets that constitute a separate unit on three different levels: organisational, financial and functional. 

So much for the legal regulations but in practice it is often challenging for taxpayers to clearly determine whether what they intend to sell is in fact an organised part of an enterprise, and therefore whether this transaction is subject to VAT.

In such cases, taxpayers apply for an individual interpretation to the Head of the National Revenue Administration Information Centre. Practice shows that tax authorities treat the statutory definition very literally. Fortunately for taxpayers, the courts present a more common-sense – and thus taxpayer-friendly – approach.

The pro-fiscal approach of the National Revenue Administration Information Centre to the definition of an organised part of an enterprise

Here we would like to discuss a case of divesting an organised part of an enterprise by a married couple who, together with their adult son, ran a horticultural farm as a civil law partnership. They applied for an interpretation to the Head of the National Revenue Administration Information Centre concerning the organised part of an enterprise. Each family member had one-third of the shares in the company. The farm used properties co-owned by all shareholders, and the subject of the contribution to the company was the right to use these properties. A greenhouse, foil tunnels and a building were built on one of the properties during the time of the company’s operation. 

The spouses, due to their advanced age, decided to transfer their shares in the company to their son free of charge, including the right to use one of the properties, together with the transfer of ownership of their shares in it. The transfer of shares was to take place before the formal winding up of the company. The elderly couple were of the opinion that transferring shares to their son constituted a delivery of an organised part of an enterprise and thus was not subject to the VAT Act. 

The Head of the National Revenue Administration Information Centre did not share the taxpayers' perspective. He found that the assets that were to be divested did not constitute an enterprise or an organised part of an enterprise as referred to in the VAT Act, as in their case the company's assets were not a separate unit, either financially or organisationally. 

The courts’ position on the essence of an organised part of an enterprise 

The courts decided not to stick to the statutory definition so strictly. Both the Provincial Administrative Court in Poznań (in its ruling of 11 December 2019, ref. I SA/Po 747/19) as well as the Supreme Administrative Court (in its ruling of 3 July 2024, ref. I FSK 1449/20) found that the key to assessing whether a given set of assets constitutes an organised part of an enterprise is to determine whether this set enables the continuation of business activity without the need for introducing any significant changes. In the case of taxpayers who applied for an interpretation, this condition was met: the parts transferred by the shareholders, although not financially and organisationally separate, could undoubtedly function as a separate whole and enabled the son to run the farm in an unchanged form.

The courts stand on a position that the existence of an organised part of an enterprise does not therefore require a rigorous separation of the three areas (financial, organisational and functional) stated in the legislative.

How does the qualification of assets applied by the courts affect the situation of taxpayers? 

This is not the first time that the Head of the National Revenue Administration Information Centre has applied the provisions of the Act too rigidly, entirely disregarding the objective of the relevant law and economic realities. However, as practice shows, it is worth fighting for one’s rights. 

According to the courts, in order to recognise whether a given set of assets constitutes an organised part of an enterprise, it is crucial to determine if they allow the business activity to be continued. However, this means that each case should be considered individually, taking into account the details of the transaction and the specifics of the business activity in question.