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Tax Planning – Comprehensive Legal and Tax Advisory Services

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Since the enactment of the general anti-avoidance rule (GAAR), numerous enterprises have questioned whether tax structure planning can still be pursued with reasonable assurance of legality. The answer is affirmative – provided that appropriate safeguards are observed.

Tax Planning – Your Legal Right

You Need Not Pay the Maximum Possible Tax Burden

Administrative courts have consistently affirmed a fundamental principle: taxpayers possess the right to select, from among available legal frameworks, those structures most advantageous from a tax perspective. Such strategic selection does not constitute circumvention of law – rather, it represents prudent business management.

As the Supreme Administrative Court articulated in its July 8, 2019 decision (II FSK 135/19): “The objective of the anti-avoidance clause is not to deprive the taxpayer of the ability to legally minimize their tax obligations (tax optimization), but rather to restrict the reduction of tax burdens in cases where the taxpayer undertakes artificial actions lacking economic justification, while simultaneously contravening the purpose and substance of the tax statute.” The Provincial Administrative Court in Olsztyn reaffirmed this principle in its December 11, 2024 ruling (I SA/Ol 384/24), stating explicitly: “It is difficult to reproach a party for attempting to optimize their activities from a tax perspective.”

The Prerequisite? Your Actions Must Possess Genuine Economic Justification

⚠️ CRITICAL LEGAL DISCLAIMER:

Each circumstance necessitates individualized assessment. The principles and examples presented herein are general in nature. The ultimate evaluation of any structure and dedicated tax advisory services depends upon the complete factual context and can be performed only following detailed legal analysis.

The Boundary Between Tax Planning and Tax Avoidance

When May Tax Authorities Challenge Your Actions?

Only when ALL three conditions are satisfied concurrently:

Condition 1: Tax Benefit Constituted Your Primary Objective

It does not suffice that tax benefit was merely an incidental consequence of the taxpayer’s actions. Rather, it must be a consciously intended goal, material to the decision to adopt a particular course of action.

Condition 2: Your Actions Contravene the Purpose of Relevant Provisions

This assessment invariably requires analysis of the specific factual circumstances. The inquiry does not concern contradiction with the literal text of law (such action would be simply unlawful). Rather, it addresses situations where one acts formally in compliance with statutory language but utilizes it in a manner the legislature did not anticipate, thereby achieving an outcome contrary to the regulatory intent.

Illustration: Exploitation of a tax exemption designed to support corporate development in a manner serving exclusively to transfer profits between related entities.

Condition 3: Your Manner of Action Is Artificial

That is, a manner which would not be employed by an entity acting reasonably and pursuing lawful objectives other than obtaining tax benefits.

Proper comprehension of permissible planning boundaries demands accurate interpretation of the prerequisites for applying the general anti-avoidance rule (GAAR), as codified in Article 119a § 1 of the Tax Ordinance Act.

Only the simultaneous occurrence of all three prerequisites enables tax authorities to challenge the tax consequences of undertaken actions. This distinction is critically important – the mere pursuit of tax minimization, even as a primary goal, does not constitute a legal violation if the manner of action possesses rational economic justification.

What Does This Mean in Practice?

You May Lawfully Minimize Taxes If:

✅ You possess genuine business rationale (beyond tax considerations)
✅ Your action demonstrates economic substance
✅ The decision is commercially rational
✅ The structure corresponds to your business needs

Economic Justification as Immunity

Fundamentally important is the proper understanding of legitimate economic reasons. As Article 119c § 1 of the Tax Ordinance Act provides: “A manner of action is not artificial if, based on existing circumstances, one should conclude that an entity acting reasonably and pursuing lawful objectives would employ this manner of action predominantly for legitimate economic reasons.” Significantly, such reasons do not include the purpose of obtaining tax benefits contrary to the object or purpose of a tax statute.

The catalogue of such legitimate reasons extends far beyond direct financial benefits. The jurisprudence of administrative courts consistently confirms that business risk management may constitute economic justification. The transformation of a partnership into a limited liability company to limit partners’ personal liability for the company’s obligations represents a classic example of justified restructuring. Even if accompanied by tax advantages, the dominant purpose of protecting partners’ personal assets legitimizes such action.

Succession planning likewise constitutes fully valid economic justification. Preparing an ownership structure for intergenerational business transfer may require complex operations – segregating strategic assets, establishing a family foundation, reorganizing the shareholding structure. Where such actions serve to ensure business continuity and secure family interests, they represent legitimate economic reasons, notwithstanding any favorable tax consequences.

Operational optimization through centralization of support functions within a holding company serving a capital group can generate genuine cost savings through economies of scale and specialization. The fact that such structure also entails tax benefits, such as consolidation of tax results, does not disqualify it as artificial. Regulatory and market requirements may likewise justify adopting particular structures. Certain forms of conducting business are mandated by regulators – for example, by the Polish Financial Supervision Authority for financial institutions – or expected by business counterparties, such as a joint-stock company structure when pursuing a public offering.

Protection of intangible assets constitutes another example of economic justification. Segregating trademarks, patents, or know-how into a separate entity may serve their enhanced legal protection, facilitate commercialization, or safeguard them against creditor claims of the operating company. This too represents legitimate economic rationale, independent of any potential tax benefits.

Artificiality of Construction – What to Avoid

Warning Signals for Tax Authorities:

⚠ Unjustified Transaction Fragmentation
Multi-step transactions without business purpose

⚠ Intermediary Entities Without Function
“Corporate shell companies” serving merely to channel funds

⚠ Circular Transactions
Actions leading to a state identical to the initial position

⚠ Disproportionate Risk
Economic risk substantially exceeding non-fiscal benefits

⚠ Entities Lacking Substance
Companies without genuine operations, particularly in tax havens

Article 119c § 2 of the Tax Ordinance Act identifies illustrative symptoms of artificial manner of action. This catalogue is non-exhaustive, meaning other indicia may also evidence artificiality. Nevertheless, the explicitly enumerated factors merit attention as they constitute warning signals for tax authorities.

Unjustified transaction fragmentation represents the first red flag. When a transaction that could be executed directly is divided into a series of intermediary steps exclusively to achieve superior tax outcomes, we encounter a hallmark of artificiality. An example might involve a situation where, instead of directly redeeming shares in a limited liability company, the taxpayer first transforms it into a joint-stock company to subsequently redeem shares with higher basis for cost recognition.

Engaging intermediary entities without economic or commercial justification constitutes another significant warning signal. Introducing into the structure entities that serve no material economic function but exist solely to channel funds or assets for obtaining tax benefits raises particular suspicion. Such entities, often characterized as letterbox companies, exhibit absence of genuine commercial activity, lack of economic substance in the form of assets or employees, location in tax havens, and operation as corporate shells.

Circular and offsetting transactions likewise evidence artificiality. When a taxpayer undertakes actions leading to a state identical or similar to the initial position, with the sole effect being tax benefit, we have a classic case of artificiality. An example might be carousel-like circulation of a trademark, where after a series of transactions the mark returns to the original owner, but now with the possibility of amortization from substantially higher value.

Disproportionate economic risk constitutes a further indicia of artificiality. When a taxpayer assumes economic risk substantially exceeding anticipated non-fiscal benefits, one may presume that the action is motivated exclusively by tax considerations. A hypothetical example might involve contributing a receivable for loan repayment in the amount of ten million złoty to a family foundation in exchange for the right to subsequent benefits valued at two million złoty.

Absence of correlation between tax benefit and economic risk or cash flows also suggests artificiality. Where achieved tax benefit finds no reflection in the entity’s actual economic risk or cash flows, this evidences detachment of the legal construction from economic reality.

Finally, engaging an entity lacking genuine commercial activity or fulfilling no material economic function, particularly if domiciled in a jurisdiction recognized as a tax haven, constitutes one of the most serious red flags. Such entities, devoid of economic substance, typically serve exclusively optimization purposes without any business justification.

Landmark Precedent: Supreme Administrative Court Decision II FSK 135/19

The Supreme Administrative Court’s decision of July 8, 2019 (case no. II FSK 135/19) constitutes a watershed moment in understanding the boundaries between permissible planning and impermissible tax avoidance. The case involved an extraordinarily complex corporate structure, whose analysis illuminates when the threshold of legality is transgressed.

The factual circumstances were as follows: An Italian bank (B.) sought to acquire control of a Polish publicly-traded company. To this end, a Polish special purpose vehicle (SPV) was established to acquire the target company’s shares. Bank B. transferred to the SPV financial resources for share acquisition and to cover costs of the bank guarantee required under public offering regulations. Following the SPV’s share acquisition, a reverse merger was executed whereby the target company acquired the SPV. In this merger, the SPV’s assets were allocated such that only eight percent was transferred to the acquiring company’s share capital, with the remaining ninety-two percent allocated to reserve capital. This occasioned a dramatic reduction in per-share value. Subsequently, the acquiring company sold treasury shares (formerly the SPV’s property) to Bank B. at substantially lower prices than their acquisition cost by the SPV. This generated a tax loss exceeding four hundred twenty-eight million złoty.

The Supreme Administrative Court, analyzing this construction, identified several critical elements evidencing its artificiality. Foremost, the taxpayer’s actions deliberately aimed to reduce revenue from share disposal while maintaining high acquisition costs actually incurred by the legal predecessor. Though these actions complied with the literal language of statutes – particularly Articles 15(1) in conjunction with 16(1)(8) of the Corporate Income Tax Act in conjunction with Article 93 § 1(1) and § 2(1) of the Tax Ordinance Act – they were manifestly contrary to the purpose and substance of the Corporate Income Tax Act.

The Court particularly emphasized that the mere fact of the taxpayer causing, through asset allocation of the acquired company predominantly to reserve capital and new share issuance, a reduction in share value and their disposal as treasury shares at prices significantly below their acquisition price by the acquired company, contravened the purpose and substance of the Corporate Income Tax Act. This purpose was defined as taxation of genuine accretions to the taxpayer’s assets. Income should therefore be calculated to reflect actual, definitive revenues and costs of their acquisition.

A material element of the Court’s reasoning was identification of alternative means of achieving the same commercial objective – namely, recapitalization of the company by its new owner. The Court observed that simpler and more conventional methods existed for realizing this goal without generating such substantial tax loss. Particularly, Bank B. could have directly acquired shares and then recapitalized the company through new share issuance. Alternatively, instead of executing a reverse merger, the SPV could have been liquidated, which would likewise have resulted in the bank acquiring control and enabled recapitalization.

Critical significance attached to the determination that economic arguments presented by the party did not justify selecting such complex structure. The party pointed to savings related to bank guarantee costs, which, through SPV engagement, could be provided directly by the parent company. The Court concluded, however, that these savings, estimated at approximately four point seven million złoty, were negligible compared to the generated tax loss exceeding four hundred twenty-eight million złoty and the potential reduction of tax liability in subsequent years. This disproportion between economic benefits and tax benefit unequivocally indicated that the construction’s primary purpose was obtaining tax benefit rather than realizing legitimate commercial objectives.

This decision establishes an important boundary for tax planning practice. It demonstrates that legal constructions, though formally correct, must reflect the economic reality of transactions. Artificial manipulation of asset values through appropriate capital allocation exclusively to generate tax loss, while simultaneously lacking material economic benefits beyond tax benefit, transgresses the boundary of permissible planning.

The Court also formulated a significant general principle, stating that while taxpayers possess the right to select from available legal solutions those most tax-advantageous, the manner of action must not be artificial. Artificiality should be assessed not merely through the prism of formal legal correctness, but principally through analyzing whether the adopted solution corresponds to genuine needs and commercial objectives, or serves mainly to achieve tax benefit contrary to the statute’s purpose.

Proportionality Test – Critical Criterion

The Key Inquiry: Do Economic Benefits Outweigh Tax Benefits?

Authorities analyze not only quantifiable financial savings, but also:

Business risk mitigation
Opportunity costs
Intangible values (reputation, market position)
Long-term strategic objectives

Among the most important tools for assessing tax planning legality is the proportionality test between economic benefits and tax benefit. The tax authority, when analyzing GAAR application, must compare genuine commercial benefits achieved by the taxpayer with the tax benefit resulting from the applied construction.

This test cannot, however, be limited exclusively to quantitative comparison of financial savings with tax benefit value. Assessment should encompass the taxpayer’s actions from the perspective of all economic benefit prerequisites, including those not yielding directly quantifiable financial savings. Such benefits include primarily business risk mitigation, which may manifest in transforming legal forms of activity to ensure greater personal security for partners, protecting key assets from operational enterprise risks, or preparing structure for intergenerational business transfer.

Opportunity costs must likewise be incorporated into this assessment. Where the structure selected by the taxpayer enables avoidance of substantial expenditures that would be necessary with a simpler legal construction, this benefit should be considered in proportionality assessment. Similarly, the intangible value of certain solutions – such as strengthened market position, enhanced reputation, or facilitated financing acquisition – though difficult to value directly, constitutes a material assessment element.

In the case adjudicated in decision II FSK 135/19, the proportionality test decidedly disfavored the taxpayer. Savings of several million złoty in bank guarantee costs were incomparably smaller than the generated tax loss exceeding four hundred million złoty. Such disproportion left no doubt that the construction’s primary purpose was obtaining tax benefit rather than realizing legitimate commercial objectives.

Also critical is the inquiry whether the adopted manner of action was the sole possible means of achieving the assumed commercial objective. Where alternative, simpler, and more commonly employed commercial methods existed for achieving the same result, selecting a complex construction generating significant tax benefits becomes difficult to defend. In the analyzed case, the commercial objective was acquiring control of a publicly-traded company and its recapitalization by the new owner. This objective could have been achieved through direct share purchase by the bank followed by their issuance, without engaging an intermediary company and without executing a reverse merger with specified capital allocation.

Examples of Permissible Planning

Understanding the boundaries of lawful planning also requires analyzing examples of structures and actions that – despite potential tax benefits – remain compliant with law due to their genuine commercial justification.

A family holding represents a classic example of permissible structure. Establishing a holding company to which shareholders contribute shares in operating companies as in-kind contributions, subsequently transferring holding shares to children, possesses solid economic justification. Such structure enables centralization of capital group management, facilitates succession through transferring one share package instead of many different packages in individual companies, enables more efficient strategic decision-making, and permits provision of shared services for the entire group. Tax benefits, such as the possibility of taxing via gift tax only holding shares rather than each operating company separately, or potential tax consolidation, constitute incidental effects of this structure, not its primary purpose. The permissibility of such solution is determined by the fact that the holding genuinely performs managerial and coordinating functions, rather than serving merely as a conduit for value transfer.

A partnership for professionals likewise illustrates permissible planning. Lawyers previously conducting individual business activities may establish a partnership to which they contribute their practices as organized parts of enterprises. Economic justification for such solution includes shared brand and marketing, cost-sharing for infrastructure encompassing office, secretariat, or IT systems, mutual substitution and collaboration on large projects, easier recruitment of junior lawyers, and limited liability for other partners’ errors. Tax benefits, such as the possibility of including shared expenses in tax-deductible costs or shifting part of income from higher to lower tax brackets, are incidental effects of a rational organizational decision. The Provincial Administrative Court in Kielce, in its November 21, 2024 decision (I SA/Ke 419/24), unequivocally confirmed that such structure does not constitute tax avoidance if it genuinely realizes business objectives.

Centralization of intellectual property within a capital group may likewise constitute justified action. Establishing a company managing intellectual property rights, to which the group transfers trademarks, patents, and licenses, with operating companies paying licensing fees, finds justification in professional intellectual property portfolio management, enhanced protection from claims against operating companies, facilitated commercialization when one entity negotiates licenses with external partners, centralized rights maintenance costs encompassing fees, renewals, and monitoring, and the possibility of obtaining specialized financing secured by intellectual property. Tax benefits, such as the possibility of amortizing acquired intellectual property rights or transferring part of group profit to an intellectual property management company taxed preferentially under IP Box provisions, are permissible if the company genuinely manages rights, licensing fees are market-rate, and economically justified by actual intellectual property utilization.

Tax Planning as Tax Avoidance

For contrast, it is necessary to identify situations that, according to jurisprudence, constitute impermissible tax avoidance. Analysis of these cases enables better understanding of where the legality boundary lies.

Fictitious service activity constitutes one of the most frequently encountered cases of transgressing this boundary. When a shareholder who is simultaneously the company’s president creates a sole proprietorship and enters into a consulting services agreement with the company, where services de facto overlap with his managerial duties, we have an artificial construction. There is no genuine accretion to the company, as the shareholder would perform these functions as management anyway. Artificial task segregation serves exclusively to convert dividends subject to nineteen percent withholding tax into service fees taxed via lump sum.

Self-rental likewise illustrates boundary transgression. When a partnership shareholder segregates real property from partnership assets to private assets, then leases it to the same partnership while simultaneously switching to lump-sum taxation of recorded revenues, such construction is artificial. No change occurs in the property’s actual utilization, which continues serving the same activity. The purpose is exclusively to convert taxation of partnership income at progressive rates or nineteen percent flat rate into taxation of rental revenues under lump-sum rates.

Bonds in family foundations constitute another example of impermissible optimization. When an operating company issues bonds acquired by a family foundation established by the company’s shareholder, with the company paying the foundation interest reducing its profit, while the foundation as an exempt entity pays no tax on interest, this mechanism serves to transform taxable dividends into interest untaxed at the foundation. In essence, company profit is extracted through the interest channel to a related structure.

How to Conduct Safe Tax Planning?

Six Principles of Professional Tax Optimization Approach

Substance Over Form
Would a reasonable entrepreneur uninterested in taxes undertake such steps?
Real-Time Documentation
Analyses, plans, opinions – prepared DURING planning, not after audit
Proportionality
Structural complexity adequate to operational scale
Arm’s Length Terms
All intra-group transactions at market prices
Genuine Functions
Each entity with real operations, substance, risk
Long-Term Perspective
Business strategy, not one-time transaction before sale

In light of the principles and examples presented above, one can formulate a set of practical guidelines for safe tax planning.

Substance over form constitutes the fundamental principle. The designed structure must correspond to genuine business needs. One must pose the question: Would a reasonable entrepreneur operating in similar circumstances but uninterested in tax efficiency do the same? If the answer is affirmative, the construction will likely withstand the legality test. If, however, the sole reason for undertaking action is tax benefit, the risk of structure challenge is elevated.

Documentation of economic justification possesses critical importance. It is essential to document reasons for undertaken actions at the time of their execution, not ex post. Business analyses, restructuring plans, legal opinions concerning operational risks – all constitute evidence that the decision had justification extending beyond tax benefits. Documentation prepared post factum, in response to authorities’ inquiries, possesses substantially lower evidentiary value. A prudent taxpayer should therefore prepare appropriate documentation concurrently with planning and executing restructuring actions.

Proportionality of actions to objectives likewise requires attention. Structural complexity should be adequate to operational scale and achieved business objectives. A multi-level holding established for a sole proprietorship naturally raises suspicion. Similarly, utilizing five intermediary entities where two would suffice requires solid justification. The more complex the structure, the greater the burden of proof rests upon the taxpayer to demonstrate its commercial purpose.

Arm’s length terms constitute another material element. All intra-group transactions, encompassing service fees, rents, or licensing fees, should be established on market terms consistent with the transfer pricing principle. Inflated or deflated fees signal warnings to tax authorities. The taxpayer should possess benchmark analyses or expert opinions confirming market-rate pricing.

Genuine functions and risks also demand diligence. Each entity in the structure should fulfill a material economic function, bear real risk, and possess appropriate substance in the form of office, employees, and decision-making processes. A shell entity, devoid of genuine operational activity, is a red flag. Thus, if a holding company functions in the structure, it should genuinely manage the group, make strategic decisions, coordinate subsidiary activities, rather than merely hold shares and transfer dividends.

Temporal perspective also bears significance for assessing action legality. Long-term restructuring actions raise less suspicion than lightning-fast transactions executed immediately before legislative changes or immediately before planned sale or liquidation. Where restructuring is deliberate, temporally distributed, and constitutes an element of long-term business strategy, defending its economic justification becomes easier. Conversely, a series of complex transactions accomplished within several weeks, directly before a planned event generating tax benefit, will raise justified authorities’ doubts.

A ruling for protection constitutes a particularly valuable tool in cases of complex structures. One should consider applying to the Head of the National Revenue Administration for issuance of a ruling for protection pursuant to Article 119w et seq. of the Tax Ordinance Act. A positive ruling protects against GAAR application and additional tax liability. Significantly, the ruling for protection institution was created precisely to enable taxpayers to obtain authorities’ position regarding tax consequences of planned or executed actions before being subjected to audit or tax proceedings.

When Do You Need Support?

Situations Requiring Professional Analysis:

Planning restructuring of capital group
Considering transformation of legal form of activity
Preparing succession and business transfer
Creating holding structure or family foundation
Centralizing functions within group (IT, HR, IP)
Received summons from tax authorities
Seeking ruling for protection

Each of These Situations Requires Examination of Three Elements:

✓ Does solid economic justification exist?
✓ Is the structure proportional to objectives?
✓ Does documentation secure your position?

Family Foundations – Special Case

Family foundations, functioning in the Polish legal order since 2023, merit particular attention as an area of intensive tax authority scrutiny and subject of numerous judicial controversies.

Permissible utilization of family foundations is illustrated by succession and consolidation cases. The founder of a group of companies contributes shares in several operating companies to a family foundation, designates his children as beneficiaries, and provides in the charter for benefit distribution only after they attain specified age or acquire appropriate professional experience. Justification for such structure includes consolidation of dispersed asset management, protection of companies from ownership fragmentation, compelling wealth preservation within the family through statutory disposition prohibitions, and preparing the younger generation to assume control. Such structure comports with the Family Foundations Act’s purpose, which is precisely succession and accumulation of family wealth.

Boundary transgression is illustrated conversely by bond issuance schemes. A family foundation established by a shareholder acquires bonds issued by his operating company. The company pays the foundation high interest, which reduces its profit and consequently taxes, while the foundation as an exempt entity pays no tax on received interest. Funds from interest are subsequently distributed to the founder as beneficiary benefits, taxed at fifteen percent at source in the foundation and exempt for the beneficiary. This construction is problematic because the foundation serves as intermediary in transferring company profit to the shareholder, the mechanism serves to circumvent two-tier dividend taxation, bond issuance was tailored to the company’s cost requirements, and genuine financial need justifying debt issuance is absent.

Courts indicate that in the first case, the foundation fulfills a genuine wealth management and succession function consistent with the Family Foundations Act’s purpose. In the second, however, it serves as an instrument for converting dividends into interest exclusively for tax benefit, which contravenes the purpose and spirit of tax provisions.

Timing and Temporal Correlation

The moment of undertaking actions possesses enormous significance for assessing their artificiality. Tax authorities particularly scrutinize actions undertaken immediately before legislative changes – for example, company transformation executed several months before introducing taxation of limited partnerships in 2021 – directly before a transaction realizing benefit, such as changing taxation form to lump sum immediately before asset sale, or in response to audit or proceedings, such as restructuring executed after initiating criminal proceedings.

Changing taxation form to lump sum for disposing of assets previously utilized in business activity does not comport with the purpose of introducing lump-sum taxation. Such action is directed exclusively toward minimizing taxation of a specific, already-planned transaction, rather than toward long-term modification of the business model.

Conversely, long-term consistency in executing business strategy, even if accompanied by tax benefits, favors the taxpayer. A five-year capital group restructuring process is more difficult to characterize as artificial than a lightning-fast series of transactions executed within several weeks. Stability and consistency in action evidence that the taxpayer is executing a deliberate commercial strategy in which tax benefits are merely one of many elements, rather than an end in themselves.

Comprehensive Legal and Tax Support

Current Structure Audit
Identification of potential threats and optimization opportunities
Action Plan
Specific steps with timeline and risk analysis
Legal Documentation
Agreements, resolutions, analyses prepared according to best practices
Legal Opinion
Detailed economic and legal justification of solution
Procedural Support
Representation in case of tax authority inquiries

About Us

Kancelaria Prawna Skarbiec – strategic advisory

We specialize in tax planning that combines efficiency with complete legal security. Our experts possess extensive experience in conducting complex restructurings, obtaining rulings for protection, and representation in tax proceedings.

Not every tax optimization constitutes tax avoidance. But each requires proper justification.