The Polish family foundation is a new institution in Polish law. Although the possibility of establishing such a foundation has existed for several months, it has already gained the interest of entrepreneurs and people looking for ways to protect their assets.

After nine months of the regulations being in force, over 400 family foundations were registered in Poland, which unequivocally confirms that the long-standing demands of Polish entrepreneurs to introduce a family foundation into the domestic legal order were justified.

A family foundation is an institution that aims to secure personal or family property against random accidents, and to ensure the continuity of the family business.

Contents
1. Why did the Polish family foundation turn out to be a compelling solution?
2. Polish family foundation in transaction
3. Tax benefits and interpretative risks in the Polish family foundation
4. GAAR clause and the activities of Polish family foundations
5. Challenges for the Polish family foundation
6. Unapparent and new attractive ways to use the Polish family foundation
7. Summary

Why did the Polish family foundation turn out to be a compelling solution?


The Polish family foundation allows you to preserve key elements of personal or family property, constituting a kind of “shield” against possible life turmoil.

The transfer of shares or stocks of companies to a family foundation enables the continuity of operation of the family business to be ensured. It is also an effective way to avoid ownership fragmentation, which is a common issue when inheriting shares. Moreover, the Polish family foundation introduces the possibility of engaging professional managerial staff to manage it, employed with the goal of implementing the objectives of the family foundation, i.e. collecting assets and multiplying them in the interest of the beneficiaries of the foundation.

Planning the succession with the use of a family foundation allows for considerable flexibility. Properly thought-out and elaborated provisions of the statute of the family foundation make it possible to comprehensively shape inheritance and transfer assets to subsequent generations.

The Polish family foundation is a tax-efficient vehicle which allows reinvestment of capital and family assets. This issue is particularly relevant in the case of the sale/acquisition of stocks and shares, in which the transaction carried out by the family foundation which manages the property in such way is taxed much more favourably in contrast to the general rules, provided that the funds from the transaction are contributed to the family foundation for the purpose of building family capital.

Polish family foundation in transaction


The participation of the family foundation in transaction processes, consisting, among others, of the sale of shares or stocks in companies, is becoming more and more common due to the method of taxation (Polish Family Foundation – new solutions for entrepreneurs), but it carries certain tax risks, referred to later in the entry.

On the other hand, from the perspective of the buyer, when the transaction seller is not a natural person, but a Polish family foundation, the transaction risk decreases significantly. This is because establishing an array of safeguards, which are often complex and costly, may prove ineffective against a natural person who can avoid liability much easier than an entity with a permanent office and specific assets. The special value of the transaction with the family foundation on the buyer’s side is therefore worth emphasizing during the negotiations.

Tax benefits and interpretative risks in the Polish family foundation


The tax aspects of the Polish family foundation are gaining importance, especially in the context of business transactions. The introduction of a family foundation to the process of selling shares may significantly change how the transaction is viewed, as the seller benefits from the lack of income tax at the time of sale, while the buyer feels more confident buying shares from a legal person rather than from a natural person.

Polish family foundations that make the transactions, as well as people considering setting up a family foundation for investment purposes, should remember that where significant tax benefits can be expected, there is also an interpretative risk. It is worth mentioning here that the GAAR (General Anti-Avoidance Rule) clause has been in effect in Poland for almost 8 years, and according to this clause, the tax authorities may consider the taxpayer’s action to only be aimed at avoiding taxation, and thus decide that from a tax perspective it is not possible to achieve such an advantage, and impose an obligation to pay tax on the taxpayer.

GAAR clause and the activities of Polish family foundations


The tax authority may conclude that the Polish family foundation was established not to fulfill its basic function, i.e. to protect and multiply assets, but to avoid taxation. This will happen when the family foundation is set up explicitly ‘for the transaction’. What could be indicative of this? When investigating whether there has been an abuse of law, the tax authorities will examine the content of the statute of the family foundation, the schedule of actions taken, as well as the time interval between the transfer of a given asset (e.g. shares or stocks) to the family foundation and its disposal.

One of the ways to protect yourself against the accusation of artificially performing activities solely to avoid taxation, is to obtain a positive individual tax interpretation, in which the tax authority, after analyzing the facts presented by the taxpayer (family foundation or founder), will decide whether the planned transaction is in accordance with the provisions of the Act.

The good news for Polish family foundations and their founders is that individual interpretations which confirm the favorable treatment of family foundations in terms of taxation have already appeared. However, as experts indicate, in the case where a family foundation is inspected by tax authorities, the key to determining the verdict is whether the family foundation actually fulfills its function specified in the Act or only serves as a tool for artificial reduction of tax liabilities.

Challenges for the Polish family foundation


Nine months after the introduction of the Act on the Polish Family Foundation, it is in vain to search for drastic changes on the transaction market or the grounding of worrying practices – be it from founders of family foundations or tax authorities. Our observations show that the presence of the Polish family foundation as a transaction party is no longer doubtful.

It will also be necessary to develop practice in the field of opportunities for Polish family foundations to invest in cryptocurrencies. It should be noted that the cryptocurrency market is not regulated in Poland and it is not subject to supervision by the Polish Financial Supervision Authority, which is why investments in this area are characterized by one of the highest degrees of risk. Since the Polish family foundation has the obligation to conduct business in the interest of its beneficiaries, activity in such a risky area may be considered as contrary to the purpose of the family foundation by its auditors.

Unapparent and new attractive ways to use the Polish family foundation


Thanks to favourable taxation, we anticipate that Polish family foundations will act as parties to high-value transactions more and more often, which will lead to locating significant assets in these vehicles. In addition, due to the statutory “obligation” to multiply assets, family foundations will be close to the broadly understood investment market, also taking into account private equity and venture capital.

Summary


Nine months after the introduction of the ability to establish Polish family foundations in Poland, many of the questions asked by the founders have been answered, and a practice accepted by tax authorities and registration courts has been developed, although some of the issues important for family foundations or people considering arranging a succession are still questionable.

Currently, there is no information on the development of changes in the regulations that would limit the possibility of using Polish family foundations in multiplying assets, or those that would dispel the doubts presented in the entry in question. We therefore have to wait until the market and legal practice in this area is finally established. Meanwhile, the commencement of more complex transactions or investments should be preceded by a thorough legal analysis.