The introduction of family foundations into the Polish legal order has raised many questions regarding the scope of their business activities, especially in the context of modern forms of capital investment such as cryptocurrencies. Trading in virtual currencies can yield high returns in the short term, which has made it a popular way to diversify an investment portfolio in recent years. Nevertheless, does trading in cryptocurrencies fall within the permitted activities of a family foundation, exempt from corporation tax? Is trading virtual currency through a family foundation, a tax-advantaged solution?
Permitted activities of a family foundation
The Family Foundation Act[1] contains a closed catalogue of business activities that a foundation may carry out. It includes, among others, activities related to the acquisition and disposal of securities, derivatives and ‘rights of a similar nature’. It was the formulation of ‘rights of a similar nature’ that raised taxpayers’ hopes that cryptocurrencies could be recognised as such rights, which would allow income from their trade to be covered by the CIT exemption.
In one of the many individual interpretations that have been issued in relation to the above-mentioned issue, the applicant argued that since income from cryptocurrencies, securities and derivatives are included in the CIT Act in the same source of income – capital gains – cryptocurrencies can be considered a right of a similar nature.
The Director of the National Tax Information did not agree with the above position. In an individual interpretation, he stated that cryptocurrencies do not have the characteristics of derivatives nor can they be considered rights of a similar nature to securities. He pointed out that cryptocurrencies are merely a digital representation of value, which, among other things, constitute neither a financial instrument nor legal tender. For this reason, trading in cryptocurrencies does not fall within the catalogue of activities permitted for a family foundation (individual interpretation of 31 October 2023, mark: 0114-KDIP2-1.4010.426.2023.2.KS).
Such an interpretation of the legislation leads to the obligation to tax income obtained as a result of trading in cryptocurrencies with 25% CIT, which makes this solution unattractive from a tax point of view.
Position of administrative courts
According to the judgement of the Voivodship Administrative Court in Poznań of 22 February 2024 (ref. no I SA/Po 895/23), cryptocurrencies cannot be considered as rights of a similar nature to securities or derivatives. Instead, they are a kind of electronic form of payment. The court emphasised that the provisions of the Family Foundation Act do not cover the trading of cryptocurrencies, which excludes the possibility of considering this activity as permitted under a family foundation.
The content of the reasoning of the aforementioned judgment confirms the correctness of the interpretation of the provisions applied by the Director of the National Tax Information with regard to the issue of cryptocurrency trading by a family foundation.
Summary
The operation of a cryptocurrency trading business by a family foundation generates an obligation to tax the income thus obtained at a 25% CIT rate. In comparison, in the case of cryptocurrency trading by an incorporated company, the income would be taxed at a rate of 19%. This difference shows that operating a cryptocurrency trading business through a family foundation is not tax advantageous and should not be recommended as the optimal solution.
Should questions or concerns arise regarding the taxation of a family foundation’s activities or other foundation-related matters, we invite you to contact us. Nexia Advicero’s experts will be happy to help resolve any doubts regarding the correct accounting of the activities undertaken by the family foundation.
[1] Act of 26 January 2023 on the family foundation (Official Journal of 2023, item 326).