Changes in the Taxation of Family Foundations

Contributing real estate or other assets through a family foundation to a company may be treated by the tax authorities as prohibited business activity. This can result in an additional tax burden and the risk that the entire transaction will be challenged. Administrative courts take a different view from the tax authorities, while the Ministry of Finance says it does not plan changes. If you manage assets through a family foundation, understand the current positions and plan ahead.

Current position: more than three years after the Act took effect

The Family Foundation Act has been in force since January 2023. More than a thousand foundations were established in the first year, while hundreds more were waiting to be registered.

The Act had a clear purpose:

• protecting family wealth from fragmentation,
• supporting intergenerational succession,
• enabling stable, long-term management of family assets.

Practice has proved more difficult. Despite its innovative approach, the rules raise serious questions of interpretation. The biggest issue concerns the taxation of in-kind contributions made by foundations to companies.

Permitted business activity of a family foundation

Article 5(1) of the Family Foundation Act introduces a closed list of business activities. A foundation may operate only within this list.

What a foundation may do

• Dispose of property that was not acquired solely for onward disposal.
• Join commercial companies, investment funds and cooperatives.
• Dispose of securities and financial instruments.
• Make loans to specified entities.
• Conduct agricultural activity.

Why the list is closed

The legislature designed the foundation as a conservative tool for protecting and managing assets, not for active commercial trading. A foundation is meant to support beneficiaries, not compete with other businesses in the market.

What this means in practice

A closed list limits a foundation’s flexibility in making decisions about its assets. If you plan to integrate family wealth with a company’s operations, check whether your plans fit within the permitted scope. Otherwise, you risk a tax penalty.

The main issue: in-kind contributions and the meaning of “disposing of property”

What the dispute is about

Article 5(1)(3) of the Act allows a foundation to join companies. At first glance, this also appears to include contributing assets in kind, such as real estate in exchange for shares.

The tax authorities, including the Director of the National Tax Information (KIS), interpret this differently.

The KIS position

The Director of KIS considers that contributing real estate or other assets to a company may be treated as “disposing of property” if:

• the real estate was acquired with the intention of later transferring it to a company,
• the transaction resembles active business activity rather than asset management.

The consequences of this classification are:

1. The transaction is treated as prohibited business activity by the foundation.
2. The foundation becomes subject to the 25% penalty rate of CIT, instead of the exemption.
3. The entire succession strategy requires revision.

Risk to your foundation

• Even actions consistent with the foundation’s general purpose of protecting and managing assets may create additional tax costs.
• Every decision to transfer assets requires detailed tax analysis.
• The lack of clear guidance forces case-by-case interpretation, costing time and money.

The administrative courts take a different interpretive line

Administrative courts disagree with the KIS approach.

The courts’ main arguments

• Article 5(1)(3) is a special provision (lex specialis) in relation to the general rule restricting the disposal of property in point 1.
• If a foundation may join commercial companies, investment funds and cooperatives, it must be entitled to make in-kind contributions, because in many cases joining would otherwise be impossible.
• The restrictions on “disposing of property” do not cover a foundation’s entry into company structures by contributing assets.

Voivodeship Administrative Court in Poznań judgment (14 May 2024)

The Voivodeship Administrative Court in Poznań expressly held that contributing an in-kind contribution to a company does not constitute prohibited disposal of property under the Family Foundation Act.

What this means for you

• If you dispute the tax authority’s position, you may have a chance of a favourable ruling in an administrative court.
• Court proceedings take time, months or even years, and incur additional legal costs.
• For smaller foundations, the financial and time burden may be prohibitive.

The Ministry of Finance position: no change and no general interpretation

In response to a parliamentary question by MP Sławomir Mentzen, the Ministry of Finance took a clear and restrictive position.

What the Ministry said

1. Permission for a foundation to join companies does not include the right to contribute assets in kind that were acquired with the intention of transferring them onward.
2. Such action constitutes “disposing of property” and is contrary to the Act.
3. Expanding the scope of a foundation’s activities would require amending the rules, not reinterpreting them.

What the Ministry does not plan to do

• It does not plan to issue a general interpretation on this issue.
• It does not plan legislative changes, citing the absence of an established line of case law.

Consequences for business owners

• Without a general interpretation, each foundation must assess the risk for itself.
• Careful planning and legal and tax consultations become necessary before every transaction.
• The appeal of the family foundation as a succession-planning tool declines, contrary to the Act’s purpose.

Interpretive differences: a risk map

What to do: checklist for family foundation managers

If you manage a family foundation or plan to establish one, go through these steps:

1. Review the foundation’s assets: check which were acquired with a view to contributing them to companies. These transactions carry the greatest risk of being challenged.
2. Analyze planned transactions: before making an in-kind contribution to a company, obtain an individual tax ruling. Without one, you are acting without certainty.
3. Document why assets were acquired: if real estate or another asset was transferred to the foundation for long-term management rather than onward disposal, keep documentation confirming that intention.
4. Assess your readiness for court proceedings: administrative court decisions favour foundations, but litigation costs money and takes time. Calculate whether it is worthwhile.
5. Consider alternative structures: if the tax risk is too high, check whether another legal form, such as a holding company, may provide better protection with less risk.
6. Monitor legislative changes and court decisions. The situation is dynamic. One Supreme Administrative Court ruling or a change in the Ministry’s position could change the picture.

Summary: what to remember

• A family foundation has a closed list of permitted business activities. Going beyond it results in 25% CIT.
• In-kind contributions to companies are the main point of dispute: tax authorities treat them as prohibited “disposal of property”, while administrative courts disagree.
• The Ministry of Finance maintains its restrictive interpretation and does not plan a general interpretation or legislative changes.
• The disagreement between tax authorities and courts means your security depends on the quality of your documentation and planning, and on your readiness to defend your decisions.
• Before deciding to transfer assets to a company through a foundation, consult a tax adviser and lawyer. The cost of advice is many times lower than the risk of a penalty.

Frequently asked questions

Can a family foundation contribute real estate or another asset to a company in kind? It depends on whom you ask. The tax authorities (KIS) and the Ministry of Finance consider that an in-kind contribution to a company may constitute prohibited “disposing of property”, especially when an asset was acquired with the intention of transferring it onward. Administrative courts take the opposite view: because a foundation may join companies (Article 5(1)(3) of the Act), it must be entitled to make in-kind contributions, since joining would otherwise be impossible in many cases.

When may an in-kind contribution to a company by a family foundation be treated as prohibited business activity? The Director of KIS classifies a contribution as prohibited activity when real estate or another asset was acquired with the intention of later transferring it to a company, or when the transaction resembles active business activity rather than asset management. If you plan such a transaction, document why the asset was acquired. Evidence that it was transferred to the foundation for long-term management rather than onward disposal reduces the risk that the transaction will be challenged.

What are the tax consequences if the tax authorities challenge a family foundation’s in-kind contribution? The foundation loses the CIT exemption and becomes subject to the 25% penalty rate of CIT. The succession strategy also needs revision, and every later decision to transfer assets requires detailed tax analysis, bringing additional time and costs.

Why do administrative courts assess family-foundation contributions to companies differently from KIS and the Ministry of Finance? The courts treat Article 5(1)(3) of the Family Foundation Act as a special provision (lex specialis) in relation to the general restriction on disposing of property in point 1. In their view, the right to join commercial companies inherently includes the right to make in-kind contributions. The Voivodeship Administrative Court in Poznań expressly said so in its judgment of 14 May 2024. KIS and the Ministry of Finance read the provisions separately and treat an in-kind contribution as prohibited “disposing of property”.

What should you do before a family foundation transfers assets to a company to reduce tax risk? Review which assets were acquired with a view to contributing them to a company, as these carry the greatest risk, and obtain an individual tax ruling before the transaction. Document why each asset was acquired, assess your financial and time capacity for possible court proceedings and, if the risk is too high, consider an alternative structure such as a holding company.