On 16.04.2025 the Head of the National Revenue Administration (KAS) issued a protective tax ruling (case no. DKP3.8082.5.2024) confirming that family foundations [hereinafter: FF] are an effective tool for managing assets, including through measures such as restructuring.
Restructuring involving a family foundation
The entry into force of the Family Foundation Act opened up a range of new possibilities in the management of family wealth. The primary role of an FF is to accumulate and protect that wealth and to manage it for the benefit of the beneficiaries.
An FF can also perform functions analogous to those of a holding company, by holding and managing shares in subsidiaries.
Duplicated roles
In the facts underlying the protective tax ruling, a family foundation was established by the Founder. At the same time, a holding company had already been created earlier, which held shares in a number of subsidiaries. The shares in that holding company were, in turn, contributed to the foundation.
This gave rise to a complex structure in which the roles performed by the holding company and the FF largely overlapped. To ensure transparency, the Founder decided to eliminate the holding company and have the FF take over all of its functions.
The proportion of asset value in a family foundation
The course of the restructuring
In the case at hand, the restructuring proceeded in several stages:
- The Founder contributed 100% of the shares in the holding company to the family foundation.
- Some of those shares were redeemed for consideration, with the foundation receiving remuneration.
- Next, the share capital of the subsidiaries was increased, with the foundation making cash contributions to them and taking up new shares.
- The holding company’s shares in the subsidiaries were also redeemed without consideration.
- Finally, a reverse merger took place between the holding company (as the company being acquired) and one of the subsidiaries (the acquiring company), as a result of which the FF received shares corresponding to its previous shareholding in the holding company.
The threat of aggressive optimisation
This series of steps gave rise to a number of tax benefits, including:
- no CIT for the FF – on the contribution of the holding company’s shares, their partial redemption for consideration and the reverse merger with the subsidiary alike,
- no liability arising on the merger of the holding company with the acquiring company – thanks to the confusion of receivables (a benefit for the debtors),
- the avoidance of CIT by the holding company – on the gratuitous redemption (without remuneration) of its shares in the subsidiaries.
In assessing the facts, the Head of KAS found that none of the benefits arising was contrary to the object or purpose of the tax provisions.
Taxation of a family foundation
The main purpose of the actions taken
In the view of the Head of KAS, the Applicant’s actions were consistent with the intent that guided the legislature in introducing the FF provisions, and were justified in economic and business terms. The Head of KAS pointed, among other things, to the original purpose for which the holding company had been created – as a vehicle for managing the Applicant’s wealth and preventing its fragmentation – a role that can now be performed more effectively by a family foundation.
The tax authorities also accepted the Applicant’s argument that there was no business justification for continuing to maintain the holding company, whose role had been reduced to providing financing and holding the shares in the subsidiaries, and recognised the synergies achievable as a result of the restructuring (through the merger of the holding company with the acquiring subsidiary).
Also of relevance is the resulting simplification of the structure – streamlining the distribution of funds between related entities (dividends from the subsidiaries will flow directly to the FF without unnecessary intermediaries).
Artificiality of the course of action
According to the assessment of the Head of KAS, the Applicant, in addition to pursuing economic objectives, also had tax objectives in mind. However, under the wording of the applicable provisions, artificiality cannot be linked to the mere intention of obtaining a tax benefit, but rather to the intention of obtaining a benefit which, in the given circumstances, is contrary to the object or purpose of the tax act or of one of its provisions.
The Head of KAS further stressed that the legislature has not provided for the possibility of transforming a holding company into a family foundation, which, in the factual circumstances presented, would have been the simplest way of achieving the objectives pursued by the Applicant.
Tax groups of family foundation beneficiaries
“Yes” to restructuring involving an FF
The decision of the Head of KAS is an important and favourable signal for family foundations planning restructuring measures or an optimisation of their shareholding structure. It confirms that a family foundation can successfully take over the functions of a holding company without the risk of those measures being challenged as tax avoidance.
Crucially, however, the measures must have a business rationale and must serve better wealth management or the prevention of its fragmentation (i.e. be consistent with the objectives of the provisions on the establishment and operation of FFs).
The mere presence of tax benefits does not in itself make a course of action artificial – provided that those benefits are not contrary to the purpose or object of the tax provisions.
Summary
In summary, the ruling strengthens the position of family foundations as effective and safe tools for implementing well-considered reorganisation measures – provided that they are properly planned and duly justified in business terms.
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We will be happy to support you in organising your wealth and planning its future with the use of a family foundation. If you are considering a restructuring, we will help you find a solution tailored to your needs and objectives.
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