The family foundation is increasingly the institution of choice for continuing the family business and protecting family assets beyond one generation.
The family foundation, in addition to benefits such as providing financial security for family members, the ability to effectively manage and multiply family assets, also offers a number of tax advantages, including, among others, PIT exemption of benefits provided to immediate family members (beneficiaries).
To determine the scope of the PIT exemption, the legislature introduced a division to determine the proportion of property contributed to a family foundation. Property contributed by inheritance or donation by the founder’s spouse, descendants, ascendants or siblings – is considered to be contributed by the founder, while property contributed by any other entity – is considered to be contributed by the family foundation.
The manner of determining the proportion of property contributed to a family foundation in which both spouses are founders has been a contentious issue in individual interpretations issued by the Director of National Tax Information over the past months. This was because it could be inferred from them that property contributed by a spouse to a family foundation could be considered property contributed by a founder only if that spouse is not also a founder of the same family foundation. This way of interpreting the regulations led to an absurd situation in which, under the tax regulations, spouses were not family to each other.
The DSK law firm represented spouses determined to establish a family foundation in which both would serve as funders.
Our experts – disagreeing with the line of interpretation at the time – pointed out the groundlessness of considering that the property contributed by a founder is not that of his spouse (the other founder). This is because such an assumption would automatically result in the beneficiary who is the founder not benefiting from the full PIT exemption, which would be in clear contradiction to the purpose of the law and the essence of the institution itself, which is a family foundation. Indeed, the provisions of the law provide no basis for treating differently property contributed by the immediate family members of the founder, who at the same time remain founders themselves.
The Director of the National Tax Information shared the arguments expressed by the specialists of DSK Kancelaria in the application and found their position entirely correct, indicating that the benefits paid by the family foundation to beneficiaries in the tax “zero group” will be entirely exempt from PIT (there is no basis for the unfavorable calculation of the proportion of property contributed to the family foundation) .
The described interpretation is precedent-setting and breaks the previous line of interpretation in this regard. This is undoubtedly another step leading to a closer approach between the tax administration authorities and the very idea accompanying the operation of a family foundation.
Individual interpretation by the director of the KIS dated July 23, 2024, ref. 0112-KDIL2-1.4011.405.2024.2.JK
