“Omnia sunt interpretanda”? A family foundation – always such a challenge, is it really?

Family foundation it is something that has not been known to Polish legal system until May 2023. As a family foundation is generally exempt from income tax, this exemption is the one that stirs up the most emotion. For this reason, potential founders or existing foundations seek to confirm the tax consequences in private letters or memoranda. Current case law discusses, among other things, what is the permissible business of a foundation, how co-founders should calculate the ratio of gifts to the foundation, what should be reported in the CIT-8FR tax return, etc.

You could say that these are rather fundamental issues.

However, sometimes the level of discomfort or uncertainty about the foundation and taxes can be surprising. One example? Transfer tax and gifts.

Can a donor pay transfer tax if the law says he cannot?

In a tax ruling dated 5 August 2024, ref. 0111-KDIB2-3.4014.280.2024.3.MD, the Tax Administration [PTA] has decided whether a founder who intends to donate a controlling stake in a company is liable to pay transfer tax.

The PTA stated that the founder should not pay any tax because he is not a taxable person. There is no doubt about it, it can be found directly in the Transfer Tax Act.

No debts transferred: The donee pays no transfer tax

Probably in the same case, in a tax ruling dated 21 August 2024, ref. 0111-KDIB2-3.4014.291.2024.4.MD, the PTA assessed the situation of a donee. If the gift contains no liabilities, would a family foundation be subject to transfer tax? This was the question.

The PTA confirmed that if the gift does not include any debts, no transfer tax is triggered. Again, this is the exact wording of the law. The answer could not have been different.

Is a doubt, doubt?

Private letters of practice or tax memoranda are quite a tool of protection. A tax “litmus paper” allowing direct and neutral discussion with the tax office. Yet it seems reasonable to use this tools wisely. Is the fear of the family foundation so great that it is necessary to use not only one’s own resources but also those of the public, to confirm the obvious and indisputable wording of the law? Consultation with an experienced tax adviser may be an option. 

MDDP has assisted many founders and foundations, we are happy to share our insights and expertise.