Foreign private foundations are becoming more and more popular among Poles as an instrument of inheritance planning and private assets protection. Polish Act on Counteracting Money Laundering and Terrorist Financing (“AML Act”) obliges Polish commercial law companies to report information about their Beneficial Owners to the Central Register of Beneficial Owners. What if a private foundation appears in the structure?
As a reminder, in case of international structures, it may happen that a Polish company – in order to determine who is the beneficial owner – will have to analyze the organizational structure of institutions unknown to Polish law. These institutions include, among others, trusts and private foundations. The Polish legislator by defining the term “beneficial owner” provided detailed criteria to help determine who is considered a beneficial owner but only in relation to a trust. What about the foreign private foundation?
What is a private foundation?
From time to time in the media in connection with financial affairs we hear terms such as “beneficiaries” or “foreign private foundation”. Private foundations become the centre of financial scandals due to the confidentiality of the institution and the potential ease to hide assets. However, it should be remembered that the institution was established with the aim of efficient estate and succession planning for companies and in this role serves best.
But… what is this private foundation? Basically, a private foundation is a legal entity founded by the founder and equipped by him with assets that are managed independently from the founder for a specific purpose or for certain persons called beneficiaries.
… and who is a beneficial owner?
It must be assumed that the criteria on trusts will apply accordingly to private foundations. Such appropriate application is imposed by the EU directive underlying the implementation of the provisions on Central Register of Beneficial Owners to the Polish legal system. According to this directive, in case of legal entities such as foundations and legal arrangements similar to trusts, as a beneficial owner is considered a natural person holding a position equivalent to positions listed in relation to trusts.
Therefore, the following natural persons should always be considered as beneficial owners of a private foundation:
- supervisor (protector);
- other persons who control a foundation
Wording of the provision suggest that a founder, supervisors (protectors) and beneficiaries must be recognized as beneficial owners even if they do not exercise actual control over a foundation.
The Directive provides, although it has not been included in the AML Act, that if the beneficiaries of the foundation have not yet been specified by name and surname, then the category of persons in whose main interest a given entity was established should be indicated. These can be, for example, children, spouse or individuals connected to a founder by blood ties.
However, it should be assumed that such solution will not apply in relation to reporting to the Central Register of Beneficial Owners, as the reported data must identify a specified natural person. As a consequence, if in a foundation’s documents beneficiaries are not identified, the obligation to report beneficiaries to the Register should only be updated when a specified natural person is established as a beneficiary, or at the time of the first distribution of a foundation’s assets to such person.
Precision worth its weight in gold
Given that foreign private foundations as an instrument of estate planning and asset protection continue to be more popular, one would expect the Polish legislator to indicate, de lege ferenda, precised criteria allowing Polish companies to determine their beneficial owners when such foundations appear in their ownership structure.
At stake are financial penalties, civil liability for damage resulting from submitting to the Register persons who are not actually beneficial owners as well as criminal liability for making a false statement.