Table of contents:
1. Should the contribution of founding capital be documented?
2. What transactions with a family foundation may trigger transfer pricing obligations?
A family foundation, despite being exempt from corporate income tax (CIT), is still subject to transfer pricing regulations. This may involve obligations such as creating local transfer pricing documentation and filing the TPR form. However, in most cases, transactions with a family foundation—due to their non-commercial nature—will not be considered controlled transactions subject to these obligations.
Should the contribution of founding capital be documented?
Only controlled transactions conducted by a family foundation are subject to transfer pricing regulations. This issue was addressed in a general interpretation dated December 29, 2021 (DCT1.8203.4.2020), which clarified that for an event to be treated as a controlled transaction, it must involve an element of economic activity. According to the indicated general interpretation, economic activity should be understood as part of the broader concept of business activity. The Minister of Finance does not explicitly define economic activity but lists the key characteristics of business activity. According to this interpretation, business activity should:
- Be conducted for profit,
- Operate within an organized structure,
- Be carried out continuously,
- Have an independent nature.
The founder is obligated, based on the foundation’s statute, to contribute assets to cover the founding capital, which may include shares, stocks, or cash. It is important to note that the family foundation acts passively in this context; the founder typically does not receive any equivalent in return for their contribution. This is particularly due to the fact that, unlike companies, a family foundation is “non-shareholding” in nature—the founder does not receive any shares in the foundation in return for their contribution (though the founder may simultaneously be a beneficiary of the foundation). Therefore, it appears that the contribution of assets to cover the founding capital will generally not meet the definition of a controlled transaction and thus will not fall under transfer pricing regulations.
What transactions with a family foundation may trigger transfer pricing obligations?
It is worth noting that benefits provided by a family foundation to its beneficiaries may constitute controlled transactions. This issue is particularly important because the recipients of such benefits are usually entities related to the foundation, as family members are considered related entities. Meanwhile, a family “business” does not always adhere to market conditions. Transfer pricing obligations may arise, for instance, if the family foundation engages in controlled transactions with the founder’s family members or their companies, and the annual value of such transactions exceeds statutory thresholds, i.e.:
- PLN 10 million net – for commodity and financial transactions, or
- PLN 2 million net – for service and other transactions.
These thresholds apply to transactions of a single type, separately for costs and revenues. According to the regulations, the thresholds are determined for each homogeneous transaction, regardless of the number of related entities involved.
Assuming that a benefit from the family foundation constitutes a controlled transaction entails obligations such as adhering to market prices and preparing local transfer pricing documentation or filing transfer pricing information.
When identifying transfer pricing obligations, it should be considered that benefits granted by a family foundation to its beneficiaries often do not have an economic nature, excluding them from being considered controlled transactions—for example, covering the costs of beneficiaries’ education or providing free housing for residential purposes. Such benefits are generally personal in nature and not related to the business activities of the beneficiary or the family foundation, which excludes them from being regarded as controlled transactions under transfer pricing regulations.
