It's no secret that 19% income tax must be paid on dividends received. If the shareholders of the company paying the dividend are corporate income tax payers, it is possible to take advantage of the dividend exemption or the exemption for a holding company. A shareholder who is an individual will not benefit from this exemption. However, what if the shareholder's claim against the company for the dividend payment is transferred to a family foundation? Will the foundation also benefit from the tax exemption in this regard? These doubts led to a tax interpretation and a judgment of the Regional Administrative Court in Warsaw (reference number III SA/Wa 1545/24).
In its position, the applicant, a general partner in a limited joint-stock partnership, argued that tax is due on the dividend paid. Therefore, since the dividend will not be paid to an individual but to a family foundation, the regulations exempting the family foundation from income tax will apply. Furthermore, since the dividend will not be paid to an individual, the individual will not be required to pay tax, as they will not receive any income. Under Article 11, Section 1 of the Personal Income Tax Act of 26 July 1991, unrealized dividend receivables do not constitute income.
Both the Director of the National Revenue Administration and the Provincial Administrative Court in Warsaw, which reviewed the appeal against the negative tax ruling, disagreed with the presented position. It stated that the taxpayer is the entity entitled to receive the dividend, which is always the partner. While the partner's instructions to transfer receivables have civil law consequences, they cannot affect tax obligations. In this case, the taxpayer remains the individual. They will be liable for the tax, even though the dividend will be paid to the account of another entity – a family foundation. It was also emphasized that this situation occurs at the partner's discretion. Its tax consequences will be the same as those of a situation where the partner receives the dividend and then transfers it to the family foundation. This is also consistent with the cash method of tax calculation (tax is calculated when income is earned). The tax point is assumed to be the moment of dividend payment, i.e., the moment when income is generated. There is therefore no obligation to pay income tax on income that has not been earned.
While a family foundation is a vehicle for concentrating assets and distributing them to entitled individuals, the regulations clearly indicate that it is not intended to circumvent tax law. The presented rulings confirm that it will be impossible to transfer tax liability from an individual to a family foundation. Actions taken to achieve this goal may be effective under civil law, but they will not produce the intended tax consequences. The ruling is not final.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of May 5, 2025
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