Donation with order will reduce tax

The Supreme Administrative Court on June 6, 2018 issued a groundbreaking ruling regarding inheritance and donation taxation. The Court pointed out that if the donation contract contains the order of the donor, the execution of such a command will allow to reduce the tax even to zero.

Donation with order and tax

The case concerned the cash donation the taxpayer received from her parents. Some of the funds had to be passed on to her husband, and the rest – to buy a house. Theoretically, the donation from parents belongs to the zero tax group, i.e. the tax rate in this case is 0%. However, in order to use the zero rate, the taxpayer must submit a declaration, which, however, she did not do on time.

Later the taxpayer referred to the provision of art. 7 par. 2 of the Inheritance and Donation Tax Act, which stipulates that the value of debiting the donation with an order constitutes the burden of donation, if it has been made. Therefore, according to the taxpayer, by transferring some of the funds to her husband and the other part to the seller of the house, she executed the parents’ order, as a result of which the tax was reduced to zero.

Position of the tax authority

However, the tax authority did not agree with such an interpretation of the regulations. He did not dispute the reduction of the tax base for transferring funds to her husband in order to comply with the order, but he stated that buying a house could not be a tax burden because it did not actually depleted the assets of the recipient. In this case, the donated funds were only converted into a share of the house’s ownership.

The Voivodeship Administrative Court also agreed with the tax authority. He pointed out that the execution of the order should reduce the value of property and property rights acquired as a result of donation. The taxpayer lodged a cassation complaint to the Supreme Administrative Court.

Interpretation of Supreme Administrative Court

The SAC did not share the position of the tax authority and the VAC, considering that the tax authority can not change the character of civil law institutions by applying tax regulations. Using the linguistic interpretation of the provisions, the court pointed out that the Inheritance and Donation Tax Act provided for only two conditions for reducing the tax base, namely the establishment of a command, regardless of whether it was established for a third party or even donee, and execution of the order. Thus, the SAC confirmed the taxpayer’s arguments and annulled the decision of the tax authority.

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