The Entrepreneurship Council appeals to the Minister of Finance to suspend work and dialogue with business on tax changes for family foundations. “It is necessary to develop solutions for the further development of this legal institution, and not de facto block it or even destroy it,” the Council assesses.
“The Family Foundation Act was developed through a unique dialogue and cooperation between business communities, including family businesses, and public administration. This Act was presented as an example of good, compromise legislation that takes into account both the legitimate interests of the State and entrepreneurs,” we read in the position of the Entrepreneurship Council.
Entrepreneurs talk about “changing the rules in the middle of the game”
The Entrepreneurship Council also recalled that in August at a conference at PAP, Ministry of Finance presented family foundations “as de facto pathological legal institutions and announced very serious legislative interference in their activities”. “It indicated the need to 'tighten the tax system', because 'beneficiaries of foundations benefit from tax preferences that go beyond the spirit of the act'. It was considered that 'tax regulations in this area went too far' and that 'nearly half of the foundations established were established solely for the purpose of tax avoidance'” – quotes RP.
According to the Republic of Poland, “in this way, the Ministry of Finance, taking as an example the few and marginal cases of establishing foundations for purposes inconsistent with the intention of the legislator, created an image of a pathological legal institution that requires radical legislative intervention limiting the rights of foundations and decided to change the 'rules during the game'”.
“Organizations associated in the Entrepreneurship Council express their deep opposition both to such a narrative around family foundations and entrepreneurs establishing them, as well as to the presented diagnosis and proposed solutions. They constitute a clear denial of the principle of legal stability declared many times by the October 15 Coalition,” we read.
“One of the most anticipated acts”
“Let us recall that a family foundation is a legal instrument introduced into the Polish legal system under the Act of 26 January 2023 on the family foundation, which entered into force on 22 May 2023. The idea of a family foundation is to 'detach' the assets contributed to the foundation from the person of the founder, because the assets contributed to the foundation become its property and cease to belong to the founder,” it was reported.
“After more than 30 years of the political transformation in Poland, domestic law has finally offered tools that, on the one hand, ensured the durability and indivisibility of the company (in particular, this applies to family businesses), and on the other hand, secured the future of the closest people (not necessarily only family members),” we read.
“The Family Foundation Act was one of the most anticipated legal acts by Polish business and after it came into force, it became a basic tool for multi-generational succession in business, similarly to the countries of 'old' Europe,” say the entrepreneurs.
“In the first year of the Family Foundations Act, Polish entrepreneurs trusted the state and registered over 1,000 foundations. Several hundred more applications for registration are pending. This clearly shows how necessary and expected the regulation was and how seriously the authorities' declarations were treated,” emphasize company representatives.
“The regulations have gone too far”
In August, the list of legislative and programmatic works of the Council of Ministers published information on the ongoing work on the draft act amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts.
As Deputy Finance Minister Jarosław Neneman told PAP, it included provisions regarding the taxation of family foundations, of which – as he added – there are currently over a thousand, and more are still being created. According to him, the current regulations give these entities far-reaching preferences.
– I do not understand why wealthy individuals who are beneficiaries of family foundations should benefit from tax preferences that go far beyond the spirit of the Family Foundations Act – said the deputy minister.
– Even the people who came up with the idea of family foundations admit that tax regulations in this area have gone too far. We have examples from tax advisory websites that encourage people to create foundations as a way to reduce taxes. There have already been opinions that almost half of the foundations that have been created were created solely for the purpose of tax avoidance. We also have reports from the National Revenue Administration that some foundations are used for very aggressive tax optimization – he added.
According to Neneman, this requires urgent intervention by the legislator. And – as he emphasized – this intervention is necessary “first and foremost for the good of family foundations, so that they do not get labeled as vehicles for aggressive tax optimization and so that they are not associated with tax fraud.”
Entrepreneurship Council
The Entrepreneurship Council was reactivated in March 2020 by the heads of the largest organizations associating entrepreneurs and employers in Poland. “The extraordinary situation in the Polish state requires extraordinary measures and actions,” they emphasized in a joint Declaration.
The members of the Entrepreneurship Council are: ABSL, Business Centre Club, Federation of Polish Entrepreneurs, Confederation Lewiatan, the National Chamber of Commerce, the Polish Business Council, Employers of Poland, the Polish Bank Association and the Polish Craft Association.
Main image source: PAP/Tomasz Waszczuk