NSA on share valuation: criticizing the method alone is not enough

The judgment of the Polish Supreme Administrative Court (NSA) of 15 October 2025 (II FSK 173/23) sends an important signal to taxpayers engaged in transactions between related parties. The Court clearly stated that a tax authority cannot automatically challenge a transaction price simply because it disagrees with the valuation method applied. When questioning the arm’s length nature of a transaction, the authority must demonstrate far more than mere reservations regarding the adopted methodology.

What was the dispute about?

The company sold shares to its shareholder, determining the transaction price based on the net asset value method, i.e. an asset-based valuation approach. The tax authority challenged the arm’s length nature of the price and rejected the valuation method used, arguing that a share valuation cannot disregard the company’s financial condition, growth potential, brand value, or market position.

Consequently, the authority applied the Comparable Uncontrolled Price (CUP) method, relying on previous transactions involving shares in the same company, including shares subscribed for as part of a share capital increase.

NSA: identifying a “better” method is not sufficient

The NSA disagreed with the tax authorities’ approach. The Court noted that under the net asset value method, the value of shares in a limited liability company is equated with the value of the company itself. At the same time, the NSA acknowledged that this method does not take into account factors such as income-generating potential, human capital value, brand strength, or market recognition. These were precisely the factors cited by the tax authorities. However, merely stating that such factors were not considered in the valuation is not sufficient to challenge the transaction price, especially where the valuation method adopted by the company was, in principle, an acceptable one and did not require such factors to be taken into account.

The key issue is whether the tax authority can demonstrate that:

• the price actually deviated from market conditions,
• the valuation method applied resulted in an understated value, and
• the methodology proposed by the authority was more appropriate and supported by a proper comparability analysis.

The judgment therefore places significant emphasis on the burden of proof resting with the tax authority. The NSA reiterated that it is not enough simply to challenge the method used by the taxpayer – the authority must also prove that its own approach reflects market realities more accurately.

Criticism of the authority’s comparability analysis

One of the most important aspects of the judgment was the Court’s criticism of the way the tax authority conducted its comparability analysis.

The NSA was particularly critical of comparing the value of shares transferred between shareholders (as a proprietary right) with the nominal value of shares subscribed for in the course of a share capital increase. According to the Court, such data could not constitute an appropriate benchmark for determining the market value of shares. The Court pointed out that these categories differ significantly in both their economic and legal nature. A comparability analysis cannot be based solely on a formal comparison of nominal values.

The judgment clearly demonstrates that applying the CUP method requires particularly careful selection of comparable data and a robust demonstration of both economic and legal comparability.

The importance of business context

The NSA also emphasized that assessing whether a transaction is at arm’s length requires consideration of its broader business context.

In the case at hand, the share sale formed part of a larger investment transaction and resulted from a specific business strategy adopted by the group. According to the Court, these circumstances should also have been taken into account in the comparability analysis performed by the tax authority.

What does this judgment mean for taxpayers?

The NSA judgment serves as a reminder that transfer pricing disputes are not solely about numbers, tables, and formal methods. Methodology, comparability, and business realities often play a decisive role.

Selecting and applying a particular method requires careful consideration of its strengths and limitations, as well as compliance with specific requirements (for example, ensuring an appropriate level of transaction comparability under the CUP method). In the case of valuation methodologies, it is essential to choose an approach that properly reflects the characteristics of the entity and the sources of value within the business.

For taxpayers seeking certainty and risk mitigation in the transfer pricing area, this judgment highlights the importance of valuation quality. In practice, valuations should be prepared by specialists who combine expertise in both valuation and transfer pricing.

From a practical perspective, a more appropriate approach in the case under review may have been to value the shares using an income-based method, such as the Discounted Cash Flow (DCF) method, which takes into account the company’s ability to generate future cash flows and its underlying business characteristics. Both the asset-based valuation method and the CUP analysis applied by the tax authority may, in practice, have had limited usefulness in determining the market value of the shares reliably.

How can MDDP experts help?

MDDP experts support clients, among others, in the following areas:

• business, share, and intangible asset valuations,
• comparability analyses and transfer pricing,
• financial modelling and due diligence,
• valuations for transaction, restructuring, and tax dispute purposes.

We combine financial, transaction, and tax expertise to help clients reduce the risk of valuations being challenged by tax authorities.

You may also be interested in our publication ”Transfer Pricing in case law. A review of trends in 2025” where we discuss 18 important judgments of the Voivodeship Administrative Courts and the Supreme Administrative Court, together with practical conclusions for taxpayers engaged in controlled transactions.