The latest position of the Head of the National Revenue Administration (KAS) – a refusal to issue a tax ruling dated May 5, 2025 (Ref. No. DKP16.8082.14.2024) – shows that using a family foundation as an intermediary in the sale of shares may be considered tax avoidance. Despite the declared succession goals, KAS deemed the action artificial and contrary to the purpose of tax regulations.
The case concerned an application in which the applicant planned to convert a limited partnership into a limited liability company. The shares in the newly formed company were to be transferred to a family foundation established by individuals. The family foundation was then to sell the acquired shares.
The Head of KAS stated that the described action met the criteria of tax avoidance as defined in Article 119a § 1 of the Tax Ordinance. In the refusal to issue the ruling, the Head of KAS highlighted the tax exemption granted to family foundations under Article 6(1)(25) of the Corporate Income Tax Act in the case of the sale of shares or payment of funds to the family foundation by the converted company or the limited liability company. As a result, a tax benefit would arise – for the companies, the benefit would be the lack of obligation to withhold tax; for the family foundation and its founders, the benefit would be the absence of a tax liability.
The Head of KAS also considered the deferral of the tax liability (arising only when benefits are paid to beneficiaries) as a tax advantage, as well as the application of a preferential 15% tax rate. Such a situation would also allow the founders to avoid the solidarity levy that would apply to the sale of shares.
Despite the economic rationale indicated in the application – primarily to secure the living needs of the foundation’s beneficiaries – the Head of KAS concluded that these were secondary to the tax benefit, which in the authority’s view was the main purpose. The authority held that the real motivation was to facilitate a pre-planned sale of shares to an already identified investor, and the family foundation was only used to obtain an exemption from CIT and PIT.
Therefore, the action was also deemed contrary to the purpose of the tax law. According to KAS, a family foundation should primarily serve the continuation or succession of business activities. The use of the family foundation as an intermediary was also considered artificial, as it lacked economic or business justification. In the authority’s opinion, if the main goal was to sell the shares, the company’s partners could have done so after the transformation without using the foundation.