Family foundation will pay CIT on in-kind contribution of real estate
If a family foundation acquires a real estate only to contribute it to a limited liability company to cover shares in the share capital, it will be obliged to settle CIT on such a contribution-in-kind, according to an interpretation by the Director of the National Tax Information System (interpretation of 22 December 2023, 0114-KDIP2-1.4010.543.2023.3.MR1).
In the case analysed by the Director of the KIS, a family foundation in organisation acquired an undeveloped plot of land. The real estate was to be contributed in kind to cover shares in the share capital of a Polish capital company. Under these facts, the foundation asked whether the in-kind contribution of the real estate to the company would be subject to CIT, in particular as a benefit under Article 24q(1)(1) or (3) of the CIT Act.
– The provisions of the CIT Act provide strict guidelines on the permitted business activities of family foundations. In order to determine the tax obligations, it is crucial to analyse these guidelines, explains Aleksandra Kodłubaj of Thedy & Partners.
In the case at hand, the Director of the NIT adopted a broad understanding of the concept of ‘disposal’. According to the authority, the notion of disposal should be understood not only as a sale, but also as making other legal transactions based on which the ownership of property is transferred, thus also making a contribution to cover the share capital of a company in exchange for shares in that company.
In view of the above, the authority considered that the foundation acquired the property only for the purpose of selling it, and this constitutes going beyond the scope of business activities of family foundations designated by the law, which is excluded from taxation. This means that the family foundation has to pay 25% CIT on the in-kind contribution.
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