Can a family foundation be used as a tool for tax optimisation?

Almost a year and a half after the entry into force of the Family Foundation Act, it appears to be enjoying enormous interest among entrepreneurs – according to data as of May 2024, over 1,000 family foundations are already registered. The data show a huge interest in this new form of business succession. Despite some drawbacks and interpretative ambiguities (for example, the issue of treating the mere joining of commercial companies as economic activity), the changes introduced by the new law convince entrepreneurs to place their assets precisely in this legal form.

Tax Preferences for the Family Foundation

The legislator, aiming to encourage entrepreneurs to use this new form of business asset transfer, introduced among others the following preferences:

• entity exemption from corporate income tax (Article 6(1)(25) of the CIT Act) – CIT at the rate of 15% will arise only in connection with the payment of benefits to beneficiaries or liquidation of the foundation;
• exemption of beneficiaries classified in the so-called zero tax group relative to the founder from personal income tax (PIT) on received benefits or assets left at their disposal after the liquidation of the foundation;
• reduction of PIT from 15% to 10% for foundation beneficiaries belonging to the first and second tax groups.

Family Foundation – A Tool for Tax Avoidance?

Tax exemptions and the possible deferral of the tax obligation encourage activities aimed at tax optimization. However, among entrepreneurs there has arisen concern whether this might constitute actions aimed at tax avoidance. So far, the Head of the National Tax Administration (KAS) has issued two binding tax opinions on this matter.

Facts: Entrepreneur X plans to create a family investment platform using a foundation, by contributing, among other things, shares of a company. The founder presented the following planned course of action:

• establishment of the family foundation;
• contribution of assets, including company shares, to it;
• ongoing operation of the foundation:
  • the foundation obtaining funds for ongoing investments through dividend payments from the company’s current profit or redemption of shares;
  • payment of benefits to the foundation’s beneficiaries;
  • the foundation accumulating funds for further investments through the sale of company shares.

In response, the Head of KAS (opinion dated 12 February 2024, ref. no. DKP3.8082.8.2023) confirmed the entrepreneur’s estimates regarding the more favorable CIT rate compared to the “traditional” way of selling shares by an individual subject to 19% PIT plus the solidarity tax on the excess over PLN 1 million.

After analyzing the provisions of the Family Foundation Act and its rationale, as well as the factual circumstances (the applicant assured that he had unsuccessfully tried to sell the shares so far), the Head of KAS stated that the actions planned by the founder do not meet all the statutory criteria for tax avoidance, despite the possibility of achieving a tax benefit. The favorable position was primarily determined by the taxpayer’s actions not aimed at gaining benefits and not contradicting the assumptions of the Family Foundation Act.

This favorable binding opinion confirms the earlier position of the Head of KAS from 21 December 2023 (ref. no. DKP3.8082.5.2023), which allows assuming that tax authorities are not opposed to establishing and running family foundations, as long as it is consistent with the assumptions and purpose of the Act.