Tax alert
Opinion of the Council for Counteracting Tax Avoidance – consequences for family foundations
The Council for Counteracting Tax Avoidance has published its first opinion directly concerning practices related to the use of family foundations for asset transfers. This event is significant not only because of the precedent set by the new body issuing an opinion, but also because of the content of the conclusions presented therein. The resolution was drafted at the request of the Head of the National Tax Administration, who pointed to serious doubts regarding the actions taken by the founder and the management board of a family foundation in relation to the rapid transfer of shares, their sale, and the payment of the proceeds to the founder in the form of a benefit. The Council’s position is of particular interest to owners of family foundations and their advisors, as it sets a practical direction for interpreting the anti-tax avoidance clause in the case of the sale of property by family foundations.
The Council’s opinion is part of a broader strategy by tax authorities, which are increasingly scrutinizing not only the formal framework of foundations’ activities, but above all their actual objectives and the economic consequences of their actions. The new opinion signals a change in approach and may have an impact on the practice of applying the provisions relating to family foundations.
Facts and model of operation
In the case in question, the taxpayer, a natural person, decided to establish a family foundation, of which he became the founder. Shortly after establishing the foundation, the taxpayer transferred his shares in a capital company to it. Immediately after acquiring these shares, the family foundation sold them to an external investor. A significant portion of the proceeds from the sale was paid directly to the founder as a benefit from the family foundation.
The documentation shows that the entire process (from the establishment of the foundation, the transfer of shares, the sale of these shares, and the payment of funds) took place within a very short period of time. During this period, the foundation did not undertake any other investment or economic activities, nor did it implement any statutory projects. In practice, the only management activity of the foundation was to execute the order to sell the contributed shares and pay the funds to the founder.
In the opinion of the tax authority, such conduct bore the hallmarks of a sham transaction aimed solely at obtaining a tax advantage. The authority argued that if the taxpayer had sold the shares directly as a natural person, he would have been required to pay capital gains tax. According to the authority, the use of a family foundation, which benefits from a tax exemption on the sale of such assets and allows funds to be paid out to the founder under a specific tax regime, was intended to circumvent tax regulations and avoid taxation.
During the proceedings, the taxpayer argued that his intention was to secure his assets and protect his family, and that all actions were lawful. He claimed that establishing a family foundation and transferring assets to it is not prohibited, and that the options offered by the legislator should be available to every taxpayer to the extent permitted by law. However, the tax authorities did not share this interpretation and requested an opinion from the Council, pointing to the lack of economic justification for such an operation, apart from the obvious tax benefit.
Key findings and conclusions of the Council for Counteracting Tax Avoidance
The Council analyzed all the circumstances of the case, focusing not only on formal aspects, but above all on the economic sense and objectives of the actions taken. In its position, it emphasized that the institution of a family foundation as such is not a tool prohibited by law and, in principle, can be used to achieve legitimate succession objectives and protect family assets. However, the condition for the tax acceptability of this form is that the foundation actually carries out activities in accordance with its statutes and the intention of the legislator.
In the case under analysis, in the Council’s opinion, the sequence of actions was organized solely to enable the taxpayer to avoid taxation of income from the sale of shares. The rapid transfer of shares, their almost immediate sale by the foundation, and the immediate payment of funds to the founder, in the absence of other investment activities, indicated the instrumental and artificial use of the institution of a family foundation. The Council pointed out that in this case, there was no question of achieving succession or investment objectives.
The Council clearly stated that in such a case the conditions for applying the GAAR clause were met. This means that the tax consequences of the transaction should be determined as if the transactions considered artificial had not taken place. In practice, the payment of benefits by the foundation to the founder will be treated as a direct sale of shares by the taxpayer, which results in the obligation to pay income tax on this transaction.
At the same time, the Council stipulated that each case should be assessed individually and not every family foundation and not every payment of funds must be automatically treated as tax avoidance. If a family foundation conducts actual activities in accordance with its statutes, manages assets, invests, or pursues succession goals, and payments to the founder result from normal activities, there are no grounds for applying the GAAR clause.
Consequences and risks for family foundations
The Council’s resolution sends a strong signal to tax authorities to analyze in detail the actual circumstances, chronology of actions, and economic rationale for operations in such cases. The authorities will not limit themselves to assessing formal compliance with regulations, but will examine the actual intentions and course of transactions. A situation in which, after the sale of assets by a foundation, the funds are transferred almost immediately to the founder, and the main motive is to avoid taxation, may be considered a circumvention of tax law and result in the application of the anti-tax avoidance clause.
In practice, this means that family foundations that do not pursue actual succession objectives, do not conduct investment activities or undertake other activities in accordance with their statutes, but limit themselves to contributing property in the form of shares for the purpose of their (rapid) sale and payment of profits to the founder, may be considered a tool for tax avoidance. The consequence of applying the GAAR clause will be to impose on the taxpayer the obligation to settle the tax as if the transaction had been carried out without the participation of the family foundation.
Summary
In view of the resolution of the Council for Counteracting Tax Avoidance, individuals and owners of family foundations should exercise particular caution when planning any transactions involving the transfer of property, sale of assets, and payment of benefits. Simply establishing a foundation and formally fulfilling the statutory requirements is not sufficient to ensure tax security. Reliable documentation and the actual implementation of economic and succession objectives will be of decisive importance.
If you have any doubts about planned or completed transactions involving a family foundation, we recommend consulting our tax law specialists and thoroughly analyzing the potential consequences.