If you run reorganisations across a group, a merger plan (plan połączenia) is familiar territory - the document the merging companies draw up to set out how the merger will work. Its template comes from EU law, written for mergers of public companies and for cross-border deals, and Poland applies the same template to its limited liability companies, so the backbone looks familiar wherever you meet it. It remains a mandatory formalism with a national flavour, though: each country shapes and modifies the template in its own company law. So the useful question is not what a merger plan is, but what Polish law insists this one contain: which of its items actually call for a decision, and which are there simply to be ticked off. Get the contents complete and the registry court registers the merger; miss something the Code requires and it will not.

What the Code makes you put in the plan

The plan is agreed in writing between the merging companies (Art. 498 of the Commercial Companies Code, Kodeks spółek handlowych, “KSH”). Its minimum content is a list of six items (Art. 499 § 1 KSH):

  1. the legal form, name and registered office of each company and the method of merger (and, where a new company is formed, the same for it);
  2. the share-exchange ratio and any cash top-ups - unless there is no exchange;
  3. the rules for allotting shares in the acquiring or new company;
  4. the date from which those new shares carry a right to participate in profit;
  5. any special rights granted to shareholders or specially-entitled persons; and
  6. any special benefits for members of the companies’ governing bodies or other persons taking part in the merger.

Items 1 to 4 must always be there. Items 5 and 6 only bite if such rights or benefits are actually granted, and in an intra-group merger they almost never are. Polish commentators are divided on whether the plan can simply stay silent on them: one view treats them as optional, the other holds that a document missing any of the six items is not a merger plan at all. I recommend writing “none” expressly. The registry court will not normally query a plan that is silent on them, but a stated “none” shows that nobody overlooked the point, and it costs one line. In plain terms: this part of the plan is a checklist you satisfy, not a text you argue over.

The exchange ratio - the one figure that is really yours

The exchange ratio (item 2) says how many shares in the acquiring company the shareholders of the absorbed company receive. It is the one truly substantive entry in the plan - and in a group it is often the only one.

Not every merger has a ratio at all. When a parent absorbs a subsidiary it wholly owns, there is no exchange; and when two sister companies merge without issuing any shares under Art. 515¹ KSH, there is nothing to allot (see Merging Polish sister companies without issuing new shares). Where there is an exchange, though, you have to fix the ratio on something.

In a group you might expect to set it off the net asset value shown in the companies’ books - and often you can. But not always. Companies with a particular business profile commission a proper external valuation and set the ratio on that, even within the group, because book value does not capture what the businesses are really worth.

The reason this matters is tax, and it runs in both directions - all of it orientation to settle with your Polish tax adviser, not tax advice.

For the acquiring company, three separate rules can turn a merger into an income event (the detail belongs to the merger tax questions):

  • a step-up charge on the market value of the assets received above their tax value, neutralised only if the acquirer carries those tax values over and keeps the assets attached to activity in Poland (Art. 12(1)(8c), 12(4)(3e) of the Corporate Income Tax Act, “CIT Act”);
  • a charge where the issue value (wartość emisyjna) of the shares allotted is set below the market value of the assets received (Art. 12(1)(8d));
  • and, where the acquirer already holds shares in the company being absorbed, a charge on the value above the cost of acquiring those shares, excluded once the holding reaches 10% (Art. 12(1)(8f), 12(4)(3f)).

Issue value is, by definition, a price not lower than the market value of the shares (Art. 4a(16a) CIT Act), and for tax it has to come from a document, so in a merger state it expressly in the plan and in the merger resolution - one more reason the ratio is not boilerplate.

On the shareholder side, the shareholder of the company absorbed has income equal to the issue value of the shares it receives in the acquirer (Art. 12(1)(8ba) CIT Act).

That income is excluded - for any merger, not only an intra-group one - where the shares were not themselves acquired in an earlier share exchange, merger or demerger and the shareholder carries its old tax basis across (Art. 12(4)(12) CIT Act), and provided the merger has valid economic reasons; the anti-avoidance rule sits above all of it (Art. 12(13)–(14) CIT Act; Art. 119a of the Tax Ordinance). Where the shareholder is an individual, the parallel rules sit in the PIT Act (Art. 24).

One timing trap runs underneath the whole exercise: for tax, both the market value and the issue value are tested on the day before the merger is registered - and the merger date is the day of the registry entry, which can fall months after the plan. A ratio set exactly on the plan figures can therefore produce a charge at registration if values have moved in between, so leave headroom or a mechanism and have the adviser confirm the issue value close to registration.

(I am an advocate, not a tax adviser; the tax points here are orientation to raise with your Polish tax adviser.)

So the real question behind the ratio is not a legal one at all: does net asset value reflect the true value of these businesses, or do you need a market valuation to stand behind the shares you issue? That is a question for the parent, settled before the plan is signed.

The four attachments

The plan carries four attachments (Art. 499 § 2 KSH): (1) the draft merger resolutions; (2) the draft amendment of the acquiring company’s articles of association, or the draft articles of the new company; (3) a statement of the value of the acquired company’s assets; and (4) a statement of the accounting position. The accounting-position statement is prepared for every company in the merger, the acquirer included. And where shares are exchanged, the Supreme Court has held that the values of all the merging companies should be attached, not only the acquired one’s, because the attachments are there to let shareholders check the ratio (judgment of 7 December 2012, II CSK 77/12).

For precision: the Code asks for the value of the assets to be determined (item 3) - not for a valuation in the sense a CFO hears in that word. In practice the figure is net asset value taken from the company’s own books, drawn up as at a date in the month before the application to announce the plan. No independent valuer, no fee. This is a different exercise from any market valuation you commission to set the exchange ratio - do not confuse the two.

The statement of the accounting position (item 4) is not the company’s full financial statements (sprawozdanie finansowe); in practice it is prepared in the same format as the latest annual balance sheet. The bottleneck here is rarely the law - it is the finance team’s workload. Group accounting functions are busy with day-to-day work and do not always treat this with the priority it needs, so ask for it early if you want the legal phase to start on time (see How long does a merger of two Polish sp. z o.o. take?). A listed company that already publishes half-year statements is relieved of the accounting-position statement (Art. 499 § 4 KSH) - a carve-out that rarely touches a private group.

In a wholly-owned group, half the plan falls away

The statutory list looks long until you notice how much of it does not apply to the typical captive merger.

When the acquiring company absorbs a company in which it holds all the shares, items 2 to 4 of the plan - the exchange ratio, the allotment rules and the profit-participation date - simply do not apply (Art. 516 § 6 KSH). The board report justifying the merger and the examination of the plan by a court-appointed expert both fall away if all the shareholders of each company consent (Art. 503¹ KSH) - from then on nobody examines the plan on its merits, only for completeness (see Do you need an auditor’s opinion on a Polish merger?). And a merger of two sister companies without a share issue strips the plan further still (Art. 515¹ KSH). In those cases the plan itself is short and largely identifying, though the four attachments still go with it: Art. 516 § 6 does not touch Art. 499 § 2. The mistake is to over-build it.

What does not fall away with the plan items is the tax. In a 100% upstream merger no shares are issued, so the issue-value charge (Art. 12(1)(8d)) has nothing to attach to - but the step-up charge (Art. 12(1)(8c), neutralised by carrying over tax values, Art. 12(4)(3e)) and the charge on the acquirer’s existing holding (Art. 12(1)(8f), excluded at a 10% holding, Art. 12(4)(3f)) are precisely the ones in play. In a sister-company merger under Art. 515¹ the statute says in terms that the issue-value charge does not arise, which is good news, but the step-up charge still has to be managed. Shed the plan items, in other words, and the tax questions stay.

Drafting the plan is a tick-box exercise against the Code

Done properly, drafting a merger plan is dull work, and that is the point. You take the Code, you take the plan, and you tick Art. 499 point by point until every required element is in, and you write “none” where items 5 and 6 do not apply. That is exactly what the registry court does at the other end: it checks that the plan contains what the Code requires. It does not ask whether your numbers are right. The court runs a legality review, not a commercial one, and it will not reopen an exchange ratio the shareholders have approved (see What the Polish registry court checks in a merger or demerger). The discipline that gets a plan registered first time, then, is completeness - not eloquence.

What this means for you

Treat the merger plan as a form to complete correctly, not a contract to negotiate. Put your attention on the two things that actually carry risk: the exchange ratio, with the valuation and tax basis behind it, and getting the accounting attachments out of your finance team on time. The rest is filling in the statutory blanks - carefully, because a blank left out is enough to hold up the registration.

The craft that is left sits in the detail. An experienced adviser knows where a sentence or two added to the plan will defuse something that could otherwise become the problem - a share-capital increase already under way that will complete during the merger and has to be described, or negative equity on both balance sheets. None of these stops the merger, but each has to be spotted and written up properly in the plan when it comes up.

Watch out

  • A missing mandatory item is enough to stop the entry. If one of items 1 to 4 or an attachment is missing, the registry court will not register the merger until the gap is closed. Items 5 and 6 are a softer case, but write “none” rather than leaving them blank. Completeness is the whole game.
  • Where shares are issued, match the issue value to the market value of the assets received. If it falls short, the shortfall is income for the acquiring company (Art. 12(1)(8d) CIT Act) - and the test is applied on the day before registration, not the plan date, so leave headroom. This particular charge does not arise in a 100% upstream merger (no shares issued) or a share-less sister merger under Art. 515¹; there the step-up (Art. 12(1)(8c)) and existing-holding (Art. 12(1)(8f)) rules are what to watch instead. Settle all of this with your Polish tax adviser before signing.
  • “Determining the value of the assets” is a book exercise - but whether book value is enough is not. The statutory attachment is net book value; whether that reflects real value, and so whether you need a market valuation to set the ratio, is a judgment for the parent, not an afterthought.
  • Tax attributes partly travel. The acquiring company succeeds to the tax rights and obligations of the company it absorbs (Art. 93 of the Tax Ordinance), but the absorbed company’s tax losses generally do not carry over. Both matter when you are absorbing a company with history on its balance sheet - flag them to your tax adviser.
  • Transaction tax is rarely an issue between capital companies. A merger that raises the acquirer’s share capital counts as a change of the articles for the tax on civil-law transactions (Art. 1(3)(3) PCC Act), but changes connected with a merger of capital companies are excluded in terms (Art. 2(6)(a) PCC Act). The question becomes real only where a partnership is in the structure.

Next steps

  1. Take Art. 499 § 1 and list the six items against your deal; mark which are “none” and state them expressly.
  2. Decide the basis of the exchange ratio - net asset value or a market valuation - and square it with the issue-value and tax points on both sides (acquirer and shareholder).
  3. Commission the two financial attachments from the finance team as at a date in the month before announcement; brief them that it is balance-sheet format, not full accounts.
  4. Draft the merger resolutions and the articles-of-association amendment as attachments, and state the issue value expressly in the plan and the resolution.
  5. Check whether the wholly-owned simplifications (Art. 516 § 6, Art. 503¹ KSH) apply - and if they do, trim the plan rather than padding it, but keep the tax analysis running.