The Swiss franc mortgage disputes have entered a new phase. More and more banks are concluding settlement agreements with borrowers, but tax settlements on this account are still highly controversial. The banks are therefore filing individual applications for tax rulings, but in the meantime the Supreme Administrative Court is developing a line of case law in the area of CIT that is negative towards them. At the same time, the Ministry of Finance does not rule out the possibility of issuing a general tax ruling on the waiver of the collection of PIT on certain income (revenues) and announced that it wants to familiarise itself with the structure of settlement agreements and resulting settlements and is open to arguments. It is therefore worth taking advantage of such ‘windows’, says Agata Dziwisz-Moshe, initiator of tax law workshops for representatives of banks operating on the mortgage market.
Problems with loan agreements in CHF
Swiss franc mortgages are one of the most complex issues in the Polish banking sector today. The history of these financial products dates back to 2000-2010, when banks offered the following products to their customers on a massive scale:
- Mortgage credits indexed to or denominated in CHF
- Mortgage loans also indexed to or denominated in CHF
Initially, these products were very popular due to their lower interest rates and greater availability compared to PLN loans. However, the sharp rise in the Swiss franc exchange rate after 2015 led to a dramatic increase in borrowers’ liabilities.
We currently see two main scenarios for the settlement of these agreements:
Judgments invalidating the loan agreement
As a result of a lawsuit filed by the borrower, the court may issue a judgment declaring the entire loan agreement invalid. In such a situation, the parties are obliged to return all benefits to each other – the borrower must repay the amount of the loan received and the bank must repay all instalments, fees and commissions charged.
The consequences of such a judgment are far-reaching for both the borrower and the bank, which must also account for such an operation from a tax perspective.
Settlement agreements between the parties
An alternative solution is a settlement agreement between the bank and borrowers. In the settlement agreement, the parties mutually agree on the method of settlement, taking into account the possibility that in the future a judgement could be issued declaring the loan agreement invalid. Usually, the parties expressly confirm in the settlement agreement that the validity of the loan agreement itself is not at issue.
Settlement agreements on CHF mortgage loans avoid lengthy litigation and give the parties more control over the terms of the settlement.
Tax aspects for banks
For banks, the tax treatment of amounts paid to customers as a result of both agreement annulment and settlement agreements, such as interest, loan fees, etc., has become a key issue. Financial institutions are seeking to include these sums in their own tax costs under the Corporate Income Tax Act.
We have written about the tax implications of CHF mortgage loan settlements here.
In order to confirm their method of handling such transactions, banks are requesting tax rulings.
What are the rulings of the Supreme Administrative Court?
With regard to settlements based on annulled agreements, the case law of the Supreme Administrative Court is consistent and negative for banks. Recently, the first negative rulings by the Supreme Administrative Court have begun to emerge, which make the consequences for banks of CIT settlements resulting from CHF mortgage loan settlement agreements the same as the consequences of annulled CHF mortgage loan agreements.
At the same time, at the end of last year, the Minister of Finance extended the application of the Ordinance on the waiver of the collection of PIT on certain income (revenues) [from settlement agreements on CHF mortgage loans] until the end of 2026, without, however, deciding to make any major changes to the structure of this waiver.
It should be borne in mind that both the civil law and tax issues of the settlement agreements on CHF mortgages and those related to the CIT and PIT settlements are interrelated, and the strategic argumentation of the Polish Bank Association (ZBP), which coordinates and represents the interests of the sector and, ultimately, the banks themselves in all these areas, should be consistent, coherent and uniform.
For this to happen, however, there must be a dialogue and exchange of experiences between the Settlement Agreements Group and the ZBP Tax Council on the civil law and tax implications of the settlement agreements on CHF mortgage loans.
There is still a willingness on the part of the Income Tax Department of the Ministry of Finance to listen to substantive arguments, including an openness to learn about the very structure of settlement agreements and the resulting settlements, which may lead to the issuance of a general tax ruling on PIT in the near future. In our opinion, it would be a pity to miss such a golden opportunity, says Agata Dziwisz-Moshe.
For this reason, the Head of our Tax Practice and Katarzyna Urbańska, Director of the Legal and Legislative Team at the Polish Bank Association (ZBP) invited the heads of the tax departments of banks and their general counsels involved in settlements of settlement agreements on CHF mortgage loans to a practical workshop on civil law and tax issues.
The main objective was to develop a comprehensive and balanced argumentation that could be used both in disputes on CIT and in discussions with the tax administration on PIT.
And it was a resounding success, because thanks to the synergy and cooperation with the two groups, we were able not only to identify problem areas, but above all to develop specific solutions and legal arguments that strengthen the position of the banks in their dialogue with the Ministry of Finance, while at the same time supporting the position of the borrowers themselves. This cooperation has shown how important it is to share experience and knowledge between experts from different fields in order to effectively solve complex tax problems, says Agata Dziwisz-Moshe.
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Agata Dziwisz-Moshe
