Income of a Polish family foundation from its participation in a Luxembourg-based Societe en commandite speciale (“SCSp”) vs. CIT exemption.

This issue was recently analysed by the Director of the National Fiscal Information (“NFI”) in an individual interpretation dated 7 December 2023, reference: 0111-KDIB1-2.4010.506.2023.2.AW.

The Director of the NFI considered incorrect the position of the applicant, who argued in the grounds for the application that the income of the family foundation from participation in the profits of a tax transparent company (SCSp) with its registered office in Luxembourg would be exempt from CIT.

What are the main arguments identified by the Director of the NFI in the justification?

• Participation in a tax-transparent Luxembourg-based SCSp does not fall within the scope of permitted activities carried out by a family foundation under Article 5 of the Polish Family Foundation Act.
• In the opinion of the Director of the NFI, participation in a tax transparent company is not listed in the permitted catalogue of activities carried out by a family foundation.
• Income from participation in a Luxembourg-based tax transparent company SCSp does not benefit from the exemption referred to in Article 6(1)(25) CIT and is subject to taxation pursuant to Article 24r CIT.
• Analysing the content of Article 5(1)(3) of the Polish Family Foundation Act – the Director of the NFI came to the conclusion that a transparent SCSp with its registered office in Luxembourg is not an entity of a similar nature to commercial companies, much less to investment funds or cooperatives.
• The commercial companies that a family foundation may join (not including a partnership) are corporate income taxpayers and are subject to CIT. Also the general partnership which the family foundation joins becomes a CIT taxpayer. The above does not apply to a foreign tax transparent company, whose tax transparent status does not change.
• In light of the regulations of the Family Foundation Act, a tax transparent company cannot be considered an entity of a similar nature to commercial companies, including investment funds or cooperatives.
• In summary, in the opinion of the Director of the NFI, the income of a family foundation from its participation in a tax transparent SCSp with its registered office in Luxembourg will not be subject to exemption from corporate income tax.

Our comment:

I do not agree with the interpretation adopted by the Director of the NFI; in my opinion, the provisions of CIT and the of the Polish Family Foundation Act do not impose such conditions for CIT exemption as were interpreted by the Director of the NFI. There is no doubt in my mind that a Luxembourg-based SCSp is an entity of a similar nature to Polish commercial companies. We will soon find out whether the competent provincial administrative court will rule on this matter.