Trust taxation in Poland. When the Common Law Meets the Civil Code
A Polish Court Refuses to Let an American Trust Borrow a Tax Exemption
A regional court in Kraków has ruled that distributions from an American trust to Polish tax residents constitute taxable income – and that the tax exemption designed for beneficiaries of Poland’s newly minted family foundations cannot be extended, by analogy, to beneficiaries of foreign trusts. The decision turns on a deceptively simple proposition: that the Anglo-American trust, built on the splitting of ownership into legal and equitable title, is fundamentally incompatible with a legal system in which ownership is, and has always been, indivisible.
What a Trust Is – and Why Polish Law Doesn’t Know What to Do with One
A Relationship, Not an Entity
A trust is not a company, not a foundation, not any kind of legal person. In its original common-law conception, a trust is a relationship – a fiduciary arrangement in which one party (the trustee) takes legal title to certain assets and agrees to manage them for the exclusive benefit of another party or parties (the beneficiaries). The Hague Convention on the Law Applicable to Trusts and on Their Recognition, adopted in 1985, defines a trust in Article 2 as a “legal relationship” – pointedly, not a legal person. The distinction was deliberate: the Convention’s drafters wanted to draw a bright line between the trust and the corporation.
The practical consequences are sweeping. A trust cannot sue or be sued in its own name – that falls to the trustee. It cannot hold property in its own name – legal title belongs to the trustee. It cannot enter into contracts as a principal – the trustee does, bearing personal liability with a right of indemnity from the trust estate. A trust has no share capital, no registered office, no legal capacity independent of the human beings who serve as its trustees.
And yet – here is the source of all the trouble – the trust’s power lies precisely in something no continental system can replicate: the splitting of ownership. The trustee holds legal title; the beneficiary retains equitable title. These are two distinct, coexisting proprietary rights, each enforceable erga omnes, each protected by law – but by different branches of Anglo-American jurisprudence (common law and equity, respectively).
The World of Trusts: From Common Law to Civil-Law Substitutes
In common-law countries – England, the United States, Australia, New Zealand, Canada – the trust is a natural institution, embedded in centuries of legal practice. The word itself derives from the Latin fides (faith) and fiducia (confidence), and the fiduciary relationship it creates imposes on the trustee the highest standard of care known to law – higher than the duty owed to one’s own property.
The trust is not monolithic. It exists in dozens of variants: express and implied, revocable and irrevocable, inter vivos and testamentary, charitable and discretionary. Statutory trusts occupy a special niche – the Delaware Statutory Trust (DST), for instance, possesses separate legal personality under the Delaware Statutory Trust Act, and the Cayman Islands’ STAR Trust separates the right to benefit from the right to enforce. But these are legislative exceptions. Ordinary common-law trusts – including the Illinois land trust at the heart of the Kraków case – have no legal personality whatsoever.
Civil-law countries – Germany, France, Italy, Poland – do not recognize the trust as a domestic institution. The concept of dual ownership – legal title in the trustee, equitable title in the beneficiary – is irreconcilable with the civilian principle of unitary ownership. In response, continental systems have developed functional substitutes: the French *fiducie* (introduced in 2007 and codified in the Civil Code), the German Treuhand, and Italian internal trusts under the Hague Convention, which Italy ratified in 1990. None of these substitutes possesses legal personality. They are contractual relationships in which the fiduciary holds assets in his own name but for another’s account.
The Hague Convention: Recognition Without Personality
The 1985 Hague Convention – ratified by fourteen countries, including the United Kingdom, Australia, Italy, Luxembourg, Malta, the Netherlands, and Switzerland – establishes a minimum standard for recognizing trusts. Article 11 guarantees that a recognized trust entails: the segregation of trust assets from the trustee’s personal estate (ring-fencing), the trustee’s capacity to sue and be sued in that capacity, the protection of trust assets from the trustee’s personal creditors, and the exclusion of trust assets from the trustee’s matrimonial property and estate upon death.
This is recognition of the trust’s effects – not the conferral of legal personality. The Convention deliberately avoids the term “legal person.”
Poland is not a signatory to the Hague Trust Convention. That fact is the wellspring of the fundamental legal uncertainty confronting Polish tax residents who find themselves beneficiaries of foreign trust structures.
The Regulatory Tide: From Privacy to Transparency
Historically, the trust was an entirely private affair – the trust deed a confidential document shared among settlor, trustee, and beneficiaries. In the classic offshore jurisdictions – the Cayman Islands, the British Virgin Islands, Jersey, Guernsey or Cook Islands – this privacy was, and in part remains, a central attraction of trust structures.
That model is eroding at an unprecedented pace. FATF Recommendation 25 (revised in February 2023, with supplementary guidance published in March 2024) requires countries to ensure that “accurate and up-to-date information” on express trusts is available to competent authorities. This includes data on settlors, trustees, protectors, beneficiaries (or classes of beneficiaries), and any natural person exercising ultimate effective control. According to the Tax Justice Network, more than a hundred and twenty jurisdictions now require some form of trust registration, sixty-five of which demand disclosure of beneficial-ownership information.
In the European Union, the Fifth Anti-Money Laundering Directive (AMLD5, 2018) introduced beneficial-ownership registers for trusts with public access. That trajectory was abruptly interrupted by the Court of Justice of the E.U., which, in its Grand Chamber judgment of November 22, 2022 (WM & Sovim SA v. Luxembourg Business Register), struck down unrestricted public access as incompatible with the rights to privacy and data protection under Articles 7 and 8 of the E.U. Charter of Fundamental Rights. Most member states subsequently restricted register access. The Sixth Anti-Money Laundering Directive (AMLD6, Directive 2024/1640) now introduces a compromise: access based on a legitimate-interest test, with a presumption of legitimacy for journalists, civil-society organizations, and academics working on anti-money-laundering issues. The transposition deadline for the key operational provisions is July 2026.
The practical upshot is unambiguous: the era of the trust that is wholly invisible to public authorities is over. A trust with a tax nexus in any FATF-compliant jurisdiction, a bank account subject to KYC/AML requirements, a connection to an E.U. citizen or resident, or a taxable event for a Polish resident will not remain anonymous. What remains private, in jurisdictions that still maintain the confidentiality model, is access by the general public – not access by competent authorities.
The Polish Asymmetry: A Minefield of Classification
Polish law – neither its civil code nor its tax code – recognizes the trust. This is not a gap that can be filled by simple analogy. It is a fundamental systemic asymmetry: the trust arises in a common-law system that permits the splitting of ownership into legal title (held by the trustee) and equitable title (held by the beneficiary). The Polish continental system does not countenance such a split – ownership is singular and indivisible (Article 140 of the Civil Code).
The consequence is far-reaching: every authority a Polish trust beneficiary encounters – the tax office, the bank, the registry court, the notary – must “translate” the trust structure into the categories of Polish law. And here the minefield begins, because the very same trust might be classified as:
- a gift – if the authority determines that the distribution constitutes a gratuitous transfer from the settlor (except that the settlor is dead, and the funds were formally disbursed by the trustee);
- an inheritance – if the authority treats the trust as a testamentary instrument (except that the property left the settlor’s estate before his death);
- income from other sources – if the authority concludes that no closed statutory catalogue applies and resorts to the residual category under Article 10(1)(9) of the Personal Income Tax Act (which is precisely what the Director of the National Tax Information Service did, and what the court upheld);
- a distribution from a family foundation – if the authority accepts a functional analogy to the closest Polish institution (which both the tax authority and the court declined to do);
- income of a controlled foreign corporation – if the trust is classified as a C.F.C. under Article 30f of the Personal Income Tax Act, with all the annual reporting obligations that classification entails through the controlled-foreign-corporation regime.
Each classification leads to different tax consequences, different reporting obligations, different deadlines. And there is no binding rule that dictates which classification must be chosen – which means that Polish trust beneficiaries operate in a state of structural legal uncertainty.
It was against this backdrop of uncertainty that the case before the Kraków court unfolded.
The Facts: An Illinois Land Trust and Its Polish Beneficiaries
The story at the center of the ruling is archetypal of cross-border estate transfers in the Polish diaspora. S.B., a Polish citizen who had settled permanently in the United States, executed a trust agreement on July 7, 2023, transferring legal title to a parcel of real estate to a trustee, J.Z. The court’s opinion anonymizes the location to “County C. in State I.” (Given the trust type and the initials, this almost certainly refers to Cook County, Illinois.) The structure was a classic Illinois land trust: the trustee held legal title, while S.B. retained the full beneficial interest – the right to sell, assign, collect rents, and direct the trustee’s actions. Upon S.B.’s death, those rights were to pass in equal shares to his four children, all Polish citizens living permanently in Poland.
S.B. died on August 5, 2023 – barely a month after establishing the trust. Following his death, the trustee sold the property, and on September 5, 2024, each of the four beneficiaries received a wire transfer of thirty-two thousand seven hundred and fifty dollars. They also paid U.S. taxes: $1,547 to the federal I.R.S. and $263 to the Illinois Department of Revenue.
The essential question was this: How does Polish tax law classify that payment?
The Applicants’ Two-Track Argument
The beneficiaries filed for a binding tax ruling, advancing a two-pronged argument.
First, they contended that the trust distribution was not subject to Poland’s inheritance and gift tax. The property had been transferred into the trust during S.B.’s lifetime; at the moment of his death, it was no longer part of his estate. The catalogue of taxable acquisition titles under Article 1(1) of the Inheritance and Gift Tax Act is exhaustive – a numerus clausus – and distributions from a trust do not correspond to any of them.
Second – and this was the crux of the dispute – they argued that, for personal-income-tax purposes, the funds constituted income from “other sources” (Article 10(1)(9), read in conjunction with Article 20(1g), of the Personal Income Tax Act), but qualified for the exemption under Article 21(1)(157)(b). That provision exempts from tax the income of a beneficiary of a family foundation from distributions, provided the beneficiary is the founder or a close relative of the founder within the meaning of Article 4a(1) of the Inheritance and Gift Tax Act. Since the trust is an institution unknown to Polish law, the applicants reasoned, and since the family foundation is its closest domestic equivalent, the exemption should apply per analogiam.
The Tax Authority’s Position: A Trust Is Not a Family Foundation
The Director of the National Tax Information Service, in a ruling dated January 24, 2025 (Ref. 0112-KDIL2-1.4011.853.2024.6.JK, 0111-KDIB2-3.4015.284.2024.5.MD), agreed with the applicants on the inheritance-and-gift-tax question: the trust distribution genuinely falls outside the exhaustive catalogue of taxable acquisition titles under Article 1(1) of the Inheritance and Gift Tax Act.
On personal income tax, however, the authority found the applicants’ position incorrect. The classification as income from other sources? Correct. But the exemption under Article 21(1)(157)(b)? No. However functionally similar a trust may be to a family foundation, a trust is not a family foundation – and an exemption constructed expressly for beneficiaries of family foundations cannot be extended to distributions from trusts.
On the question of double taxation, the authority pointed to the 1974 Poland–United States double-taxation treaty. Because the treaty contains no separate article governing trust distributions, the payment falls under Article 5 (“General Rules of Taxation”), with relief provided through the proportional-credit method of Article 20(1).
The Kraków Court: Analogy in Tax Law Has Its Limits
The applicant challenged the ruling solely on the personal-income-tax question, alleging a misinterpretation of Article 21(1)(157)(b). The constitutional argument – unequal treatment of persons in an identical factual situation – was the core of the complaint. The beneficiary of a family foundation established by one’s father is exempt from tax; the beneficiary of a trust established by one’s father for the identical purpose is not. The difference arises solely from the absence of trust regulation in Polish law.
The Voivodeship Administrative Court in Kraków – Judges Paweł Dąbek (presiding), Inga Gołowska (reporting), and Grzegorz Klimek – dismissed the complaint.
The court’s reasoning moved along three axes, each deserving attention.
The First Axis: Systemic Incompatibility
The court devoted a substantial portion of its opinion to reconstructing the common-law trust, drawing on legal scholarship (Hill & Kardach; Gajewski) and identifying its defining feature: the splitting of proprietary rights (erga omnes) between trustee (legal title) and beneficiary (equitable title). In Polish civil law, the principle of the unity of ownership obtains – the numerus clausus of property rights, the allodial conception of ownership – which means that an owner’s entitlements cannot, by act of the parties, be severed and transferred to others. The trust, at its core, presupposes something that Polish property law does not permit.
This is not merely a doctrinal observation. It carries direct consequences: if the trust cannot be accepted within the Polish legal system because of its incompatibilitas with the foundational principles of property law, then extending tax privileges to it by analogy raises – as the court put it – “doubts.”
The Second Axis: The Limits of Analogy in Tax Law
The court articulated an important proposition about the permissibility of reasoning per analogiam in the context of tax exemptions. Analogy, the court observed, leads to an “expansion” of the scope of interpreted legal norms to categories of factual situations that those norms were in principio not designed to cover. Its application amounts, in effect, to the creation of a new, case-specific legal norm.
Expanding taxpayer privileges by analogy, stretching reliefs and exemptions to situations not covered by the relevant provisions – this was the boundary the court was unwilling to cross. It bears emphasis that the court did not pronounce a categorical prohibition on analogy in tax-exemption cases; it signalled “doubts,” reinforced by the argument from systemic incompatibility. In my assessment, however, the court’s reasoning can be situated within the broader doctrinal tradition that holds tax exemptions – as exceptions to the principle of universal taxation – to be subject to strict interpretation (exceptiones non sunt extendendae).
The Third Axis: Treaty Classification of the Income
The court confirmed the correct application of Article 5 of the 1974 Poland–U.S. double-taxation treaty. The trust distribution does not constitute income from immovable property within the meaning of Article 7 of the treaty (the beneficiaries were never the owners of the property – the trust was). The treaty contains no article dedicated to trusts. The income is therefore taxable under the general rules, with relief through the proportional-credit method of Article 20(1). The court noted that the detailed question of crediting federal and state U.S. taxes could be examined in any future assessment proceedings.
Five Takeaways for Practice
The Kraków court’s decision, though it concerns relatively modest sums (thirty-two thousand seven hundred and fifty dollars per beneficiary), formulates propositions of fundamental importance for cross-border tax planning.
First, it is now confirmed that distributions from foreign trusts to Polish residents are not subject to Poland’s inheritance and gift tax – but only because the exhaustive catalogue of taxable-acquisition titles in Article 1 of the Inheritance and Gift Tax Act does not include trust distributions. This is not a privilege; it is a gap in the catalogue.
Second, such distributions constitute income from other sources under the personal income tax (Article 10(1)(9), read with Article 20(1) of the P.I.T. Act), taxed at progressive rates.
Third – and this is the ruling’s most significant holding – the exemption under Article 21(1)(157)(b), designed for beneficiaries of family foundations, does not apply to trust distributions, even by analogy. The functional argument (that trusts and family foundations serve identical economic purposes) does not overcome the principle that tax exemptions are to be interpreted strictly.
Fourth, in Polish–American relations, Article 5 of the 1974 treaty (general rules of taxation) applies, with the proportional-credit method. Poland retains the right to tax the income but permits a credit for tax paid in the United States.
Fifth – and this is my conclusion, not the court’s – the ruling exposes a need for legislative intervention. Polish tax residents who are beneficiaries of foreign trusts find themselves in a worse tax position than beneficiaries of domestic family foundations, despite the functional identity of the two legal relationships. Whether this is a justified disparity or a violation of the equality principle under Article 32 of the Polish Constitution is a question that will, sooner or later, reach the Supreme Administrative Court.
What Comes Next
The judgment is not final and will, in all likelihood, be appealed to the Supreme Administrative Court. The higher court’s decision will carry precedential weight – not only for American trusts but, more broadly, for the entire category of foreign fiduciary structures that Polish tax law must grapple with as global asset mobility accelerates.
It is worth noting that the applicant’s constitutional argument – that trust beneficiaries and family-foundation beneficiaries are treated unequally – was not explicitly rejected by the Kraków court. The judges focused on the systemic impossibility of applying analogy in tax law but did not foreclose the possibility that the problem may require a legislative response. The distinction is subtle but significant.
For practitioners – both tax advisers and attorneys who serve cross-border wealth transfers – the Kraków ruling is a signal: succession planning involving trusts demands that Polish tax consequences be addressed at the structuring stage, not after the fact, once the funds have already arrived in a Polish beneficiary’s bank account.
Robert Nogacki is the founder and managing partner of Kancelaria Prawna Skarbiec, a Warsaw-based law firm specializing in international tax advisory, cross-border estate structuring, and regulatory compliance.
This article is based on the judgment of the Voivodeship Administrative Court in Kraków, dated May 30, 2025 (Case No. I SA/Kr 200/25), and on the individual tax ruling of the Director of the National Tax Information Service, dated January 24, 2025 (Ref. 0112-KDIL2-1.4011.853.2024.6.JK, 0111-KDIB2-3.4015.284.2024.5.MD).
Robert Nogacki – licensed legal counsel (radca prawny, WA-9026), Founder of Kancelaria Prawna Skarbiec.
There are lawyers who practice law. And there are those who deal with problems for which the law has no ready answer. For over twenty years, Kancelaria Skarbiec has worked at the intersection of tax law, corporate structures, and the deeply human reluctance to give the state more than the state is owed. We advise entrepreneurs from over a dozen countries – from those on the Forbes list to those whose bank account was just seized by the tax authority and who do not know what to do tomorrow morning.
One of the most frequently cited experts on tax law in Polish media – he writes for Rzeczpospolita, Dziennik Gazeta Prawna, and Parkiet not because it looks good on a résumé, but because certain things cannot be explained in a court filing and someone needs to say them out loud. Author of AI Decoding Satoshi Nakamoto: Artificial Intelligence on the Trail of Bitcoin’s Creator. Co-author of the award-winning book Bezpieczeństwo współczesnej firmy (Security of a Modern Company).
Kancelaria Skarbiec holds top positions in the tax law firm rankings of Dziennik Gazeta Prawna. Four-time winner of the European Medal, recipient of the title International Tax Planning Law Firm of the Year in Poland.
He specializes in tax disputes with fiscal authorities, international tax planning, crypto-asset regulation, and asset protection. Since 2006, he has led the WGI case – one of the longest-running criminal proceedings in the history of the Polish financial market – because there are things you do not leave half-done, even if they take two decades. He believes the law is too serious to be treated only seriously – and that the best legal advice is the kind that ensures the client never has to stand before a court.
