Table of Contents:
- Is CIT (Corporate Income Tax) payable upon the dissolution of a family foundation?
- What is the tax value of property?
- Is PIT (Personal Income Tax) payable upon the dissolution of a family foundation?
The law stipulates that if a family foundation is dissolved during the founder’s lifetime, the founder is exclusively entitled to receive the assets in connection with the dissolution of the family foundation, unless the statute provides otherwise – in particular, identifying beneficiaries entitled to the assets in connection with the dissolution of the family foundation. Conversely, when a family foundation has more than one founder, the distribution of assets in connection with the dissolution of the family foundation is made proportionally to the value of the assets contributed by the founder, their spouse, descendants, ascendants, or siblings, in relation to the value of the assets contributed by all founders, their spouses, descendants, ascendants, or siblings, unless the statute provides otherwise. A family foundation is generally exempt from CIT, but certain events will result in the foundation being subject to corporate income tax. One such event is the dissolution of the foundation.
Is CIT payable upon the dissolution of a family foundation?
As indicated by the CIT law, upon the dissolution of a family foundation, transferred or made available property is subject to taxation at a rate of 15%. The tax base is the value of the property released upon liquidation, reduced by the tax value of the property contributed by the founder. As a rule, the value of the property is considered its market value at the time of the foundation’s dissolution.
What is the tax value of property?
“The tax value of property” is the value by which the taxable income is reduced at the time of liquidation – it is the value that was not previously included in any form as deductible expenses and would have been accepted by the founder as such a cost if the property had been sold for consideration directly before its contribution to the family foundation – with the reservation that this value cannot exceed the market value of the property. Therefore, in practice, the foundation is obligated to pay 15% CIT on the market value of the property released upon liquidation, reduced by the historical tax cost incurred by the founder at the time of contributing this asset to the foundation.
Unfortunately, attention should be paid to the limitation that the tax value of the property at the time of its contribution to the family foundation cannot exceed its market value – consideration should be given to whether this provision should be interpreted literally or purposively. Following a purely literal interpretation would mean that if, at the time of contribution, for example, the market value of shares is lower than the historical purchase cost, during the liquidation of the family foundation and in determining the tax issue, only the market value at the time of acquisition could be taken into account, not the historical cost, which could be significantly higher. However, doubts may arise as to whether this was indeed the intention of the legislator.
Is PIT payable upon the dissolution of a family foundation?
The PIT law states that property received in connection with the dissolution of a family foundation constitutes income from other sources. If the person entitled to receive the property is the founder or a person in the zero tax group for the founder, the income is exempt from taxation. For individuals in the first and second tax groups, the income is subject to taxation at a rate of 10%, and for other individuals, the rate is 15%.
