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According to individual interpretations of 30 April 2024 issued by the Head of the National Tax Chamber, benefits paid from a family foundation to the founding spouses are subject to partial personal income tax (ref. 0112-KDIL2-1.4011.113.2024.2.JK and 0112-KDIL2-1.4011.114.2024.2.JK).
Pursuant to Article 20 section 1g of the Personal Income Tax Act (hereinafter the “PIT Act”), the benefits received by beneficiaries of family foundations are in principle taxable. However, if the benefit is paid to the funder or his or her next of kin (spouse, descendants, ascendants, stepchildren, siblings, stepfather or stepmother), the income is tax exempt. This exemption is only granted in proportion to the assets contributed by that founder in relation to the total property contributed to the family foundation (Article 21 section 1 point 157 and section 49 of the PIT Act). The reason behind this restriction is to ensure that the preference is only granted for the benefit of the founder and his or her family. Consequently, if a family foundation is set up by several unrelated individuals, the exemption is to be applied proportionally.
The rules for calculating the proportion are specified in Article 28 section 2 of the Family Foundation Act, which stipulates that assets contributed to a family foundation by the founder or the founder’s spouse, descendants, ascendants or siblings is deemed to have been contributed by the founder. However, according to the abovementioned interpretations this rule does not apply when both spouses are funders. According to the authority, such assets can only be deemed to have been contributed by a founder if his or her relatives are not founders themselves, even if the funds contributed to the family foundation by the spouses came from the joint marital property of the spouses.
The interpretations of the Head of the National Tax Chamber not only contradict the commonly accepted interpretation, but also the very purpose of introducing family foundations into the system. Intended for the preservation and multiplication of family assets, a family foundation would thus be more beneficial for a single person than for spouses establishing a family foundation together. Bearing the above in mind, as well as the lack of rational justification for the interpretation of the legislation imposed by the authorities, the quoted conclusions should be viewed negatively. Let’s hope this opinion will be shared by the administrative courts, forcing a change in the way the tax authorities interpret the legislation in this regard.
Author: Jan Potyrała, Trainee attorney‑at‑law, Associate