Family foundation and CIT
Generally, as long as the assets remain in a family foundation, it does not have to pay corporate income tax. For example, the transfer of assets to a foundation beneficiary or the payment of hidden profits are subject to 15% CIT. It is also exempt from CIT in the scope of conducting so-called permitted economic activity, referred to in art. 5 sec. 1 of the Family Foundation Act. Activities going beyond this scope are subject to 25% CIT.
Permitted economic activity of the foundation
The permitted business activities of a family foundation include, among others, activities related to joining and participating in commercial companies, investment funds, cooperatives and entities of a similar nature (including foreign ones, Art. 5 sec. 1 item 3), as well as the disposal of property, unless it was acquired solely for the purpose of further disposal (Art. 5 sec. 1 item 1).
Contribution of assets to the company without CIT
A family foundation informed the director of the National Revenue Information last year about its intention to acquire real estate in order to contribute it as a contribution in kind to a capital company to cover shares in its share capital. This will allow the foundation to join the company and generate income from the dividend paid by the company. The time that will elapse between the purchase of the land and its contribution in kind will constitute the period necessary to complete all corporate and legal actions. Hence, the sole purpose of acquiring the real estate is to make it accessible to the company. The foundation was convinced that, pursuant to Article 5, Section 1, Item 3 of the Family Foundation Act, the described transaction will not be subject to corporate income tax.
The tax office had a different opinion
The KIS Director considered the foundation’s position to be incorrect. He stated that the transaction in question meets the characteristics of the activities referred to in art. 5 sec. 1 item 1 of the FR Act, and therefore the purchase of real estate was made for the purpose of further sale. He indicated that the concept of sale of property should be understood more broadly than just its sale, and therefore also as a legal act leading to the transfer of ownership of property – also by contributing it as a contribution to the company in exchange for its shares.
Lex specialis derogat legi generali
The Provincial Administrative Court in Poznań agreed with the findings of the authority that the disposal of property may also occur in a manner other than sale. The provision cited by the KIS director does not even require that the disposal must be for consideration. However, the court noted that such an interpretation should be compared with the interpretation of a separate provision of art. 5 sec. 1 item 3. The concept of joining a company is understood as all the activities necessary to become its member. In the case in question, the family foundation’s non-cash contribution in the form of real estate was a condition for membership in the company. The provisions of the latter regulation constitute lex specialis in relation to the provisions of art. 5 sec. 1 item 1 and, as they are characterized by a narrower scope of application, they take precedence (judgment of 14 May 2024, file reference I SA/Po 152/24).
Summary
This is very beneficial for family foundations and the only correct decision of the Poznań court. Since the legislator clearly separated the activity of acquiring property for further resale from the activity of joining companies, funds and other entities of a similar nature, the tax office cannot forget about this separation at its discretion. The purpose of family foundations was to protect family companies and assets, and not to reduce them with double taxation. After all, the foundation will pay the due CIT at the right time, when it decides to pay its beneficiaries the dividend obtained from the company.
Source: Skarbiec Law Firm / PAP