Family Foundations – There is a Problem When the Founders are Spouses

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Table of Contents:

  1. Can Spouses be Founders?
  2. How to Secure Foundation Payments from PIT Taxation?

 

It turns out that a family foundation may not be tax-attractive if it is established by two spouses – the payment of benefits to the spouses may be partially subject to PIT, as indicated by the latest individual interpretations from the Director of the National Tax Information.

Can Spouses be Founders?

According to the decisions of the Director of the National Tax Information, the key issue in the taxation of payments made by a family foundation is who is the founder. The tax authorities recognize that if the founder of the family foundation is only one of the spouses and both are beneficiaries of this foundation, in the case of a payment from the family foundation, both will be completely exempt from personal income tax. This is because the assets contributed to the family foundation by the founder or their closest relatives (spouse, descendants, ascendants, or siblings) qualify as assets contributed personally by the founder in accordance with Article 28(2)(1) of the Family Foundation Act.

Interestingly, the Authority considers that if both spouses are both founders and beneficiaries of the family foundation, the above provision will not apply. This position was expressed in the individual tax law interpretation issued on August 18, 2023, with the reference number 0113-KDIPT2-3.4011.465.2023.1.JŚ, in which the Director of the National Tax Information explicitly stated that “assets contributed to the family foundation through donation or inheritance by the spouse, descendants, ascendants, or siblings of a given founder can, in accordance with Article 28(2)(1) of the Family Foundation Act, be considered as contributed by that founder only if the spouse, descendants, ascendants, or siblings of that founder are not simultaneously the other founders of the family foundation.”

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How to Secure Foundation Payments from PIT Taxation?

The position presented by the Authority seems contrary to the legislator’s intention but also issued in disregard of the applicable regulations. At present, to ensure that the beneficiaries of the family foundation can enjoy the broadest possible income tax exemption, it is worth considering the structure of the foundation and analyzing the available solutions for their tax efficiency already at the stage of creating the foundation.

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