Can a family foundation invest in cryptocurrencies?

Family foundations have been part of the Polish legal system for over two years and have naturally become a popular tool for succession planning. As they gain traction, questions have arisen regarding the permissibility of accumulating and disposing of digital assets by family foundations, especially in light of their tax-advantaged status.

In its tax ruling of 19 November 2024 (ref. 0111-KDIB1-2.4010.523.2024.1.BD), the Director of the National Tax Information Service concluded that the sale of tokens contributed to a family foundation under its deed of formation does not qualify for corporate income tax exemption. This interpretation aligns with a prior ruling dated 16 September 2024 (ref. 0111-KDIB1-2.4010.340.2024.1.BD), which addressed a similar issue regarding cryptocurrencies.

Facts of the case – tokens as assets of the family foundation

The applicant intended to establish a family foundation and contribute, among other things, five tokens (virtual currencies) as part of the foundation’s initial assets. The plan was to sell these tokens at a later stage –  within a maximum of 15 years – once their value appreciated. The applicant argued that such a transaction falls within the scope of permitted business activity of a family foundation (Article 5(1) of the Family Foundation Act) and should therefore benefit from the corporate income tax exemption provided for in Article 6(1)(25) of the CIT Act.

Applicant’s position

The applicant argued that contributing assets under the deed of formation does not constitute their “acquisition” and thus cannot be viewed as acquisition for the sole purpose of resale, which would disqualify the tax exemption. In their view, the disposal of tokens contributed at formation should fall within the scope of permissible activities of a family foundation.

The problem of “acquisition solely for the purpose of disposal”

The tax authority disagreed. It referred to the Family Foundation Act, which permits a foundation to dispose of assets only if they were not acquired solely for the purpose of resale. The authority interpreted “acquisition” broadly to include all forms of transfer of ownership, including gratuitous contributions. Therefore, the contribution of tokens to the founding capital constitutes “acquisition” under the law.

Moreover, given that the intention to sell the tokens at a higher value was declared from the outset, the tax authority concluded that the tokens were acquired with an investment motive – that is, solely for future resale.

Consequently, such a transaction does not fall within the scope of permissible business activity under Article 5 of the Family Foundation Act and cannot benefit from the exemption under Article 6(1)(25) of the CIT Act. As a result, the income from such a sale is subject to a punitive 25% corporate income tax rate, pursuant to Article 24r(1) of the CIT Act.

Consistent administrative practice

This interpretation is consistent with previous rulings issued by the tax authority. In the aforementioned ruling of 16 September 2024, the authority found that cryptocurrency sales – where the tokens are held as investment assets – fall outside the scope of permitted business activity, as their sole purpose was to gain value over time. Simply holding such assets without using them in any operational capacity does not meet the statutory criteria for permitted economic activity.

Similarly, in its judgment of 22 February 2024 (ref. I SA/Po 895/23), the Voivodeship Administrative Court in Poznań ruled that virtual currencies lack sufficient similarities to derivative instruments to be treated as comparable rights.

What about investment funds dealing in cryptocurrencies?

Importantly, the notion of acquisition “solely for the purpose of disposal” applies strictly to assets. In contrast, family foundations may acquire and dispose of securities, derivatives, and similar financial instruments as part of their business activity.

In the ruling of 16 September 2024 (ref. 0111-KDIB1-2.4010.339.2024.1.BD), the tax authority confirmed that family foundations may acquire and dispose of securities, including ETFs based on cryptocurrencies, within the scope of their permitted activities. ETFs, even when crypto-based, qualify as securities provided they meet the statutory requirements – for instance, being traded on regulated exchanges and approved by supervisory authorities such as the U.S. SEC.

The ruling explicitly states that since the foundation conducts business involving the acquisition and disposal of securities, derivatives, and comparable rights (under Article 5(1)(4) of the Family Foundation Act), such transactions are not subject to the restriction under Article 5(1)(1), which prohibits the acquisition of assets solely for resale. The cryptocurrency underpinning of an ETF does not affect its classification as a security.

Conclusions

The tax authority’s interpretation appears consistent with the literal wording of current legislation, assuming two key conditions are met:

1. The acquisition of cryptocurrency is made solely for the purpose of resale; and
2. The foundation acts in circumstances indicating that it is engaged in business activity.

In other words, if a family foundation acquires cryptocurrency for transactional purposes (e.g. settling obligations) and later sells it incidentally, it may remain within the bounds of permitted business activity. It can also be argued that merely holding cryptocurrency in a digital wallet does not, in itself, constitute business activity. Only when the foundation engages in continuous, organised, and profit-oriented trading of cryptocurrencies can it be considered to be conducting business. It is only such activities that are subject to the limitations in question.

Given the current stance of the authorities, the only clearly acceptable form of cryptocurrency investment by a family foundation appears to be through regulated financial instruments such as ETFs or ETCs, which qualify as securities. This method is distinct from direct ownership or trading of cryptocurrencies, which may be deemed as the resale of assets acquired solely for that purpose – thereby subjecting the resulting income to the 25% corporate income tax rate.