Cash donation from family members only with tax!

On March 20, 2023. The Supreme Administrative Court, composed of 7 judges, adopted a debatable resolution according to which: "the expression used in Article 4a (1) (2) of the Law on Inheritance and Gift Tax of July 28, 1983 (Journal of Laws of 2021, item 1043, as amended) "where the object of acquisition by way of a donation or a donor's order is cash (...) - document its receipt with proof of transfer to the purchaser's payment account, to his account, other than a payment account, in a bank or a cooperative savings and credit union, or by postal money order," should be understood to mean that a sufficient condition for taking advantage of the tax exemption regulated by this provision is the documentation of the transfer of cash in the manner indicated in this provision by the donor to the recipient of the gift." (see: Resolution of 7 judges of the Supreme Administrative Court of March 20, 2023,https://orzeczenia.nsa.gov.pl/doc/8A1C0E342D).

The above resolution is based on the Ombudsman's request dated November 16, 2022, mark: V.511.953.2022.EG, for a panel of seven judges of the Supreme Administrative Court to decide on the basis of Article 264 § 2 in connection with Article 15 § 1 item 2 of the Act of August 30, 2002. - Law on Proceedings before Administrative Courts (Journal of Laws 2023, item 259, as amended), a resolution to clarify: "Whether the expression used in Article 4a (1) (2) of the Law on Inheritance and Gift Tax of July 28, 1983 (Journal of Laws of 2021, item 1043, as amended) "where the object of acquisition by gift or donor's order is cash (...) - document their receipt with proof of transfer to the purchaser's payment account (.... )" should be understood to mean that the payment or transfer of funds, which are the subject of a legal act of donation, by the donor to the donor's account only, is considered to be evidence allowing the use of the tax exemption for the next of kin, or is the payment of funds by the donor to his own account on behalf of the donor sufficient?"

In fact, it should be pointed out that in accordance with the content of Article 1(1)(2) of the Act of July 28, 1983 on inheritance and donation tax (i.e. Journal of Laws of 2021, item 1043, as amended), inheritance and donation tax is subject to the acquisition by natural persons of ownership of things located in the territory of the Republic of Poland or property rights exercised in the territory of the Republic of Poland, by way of a donation. In turn, according to Article 4a of the Law on Inheritance and Donation Tax of July 28, 1983 (i.e., Journal of Laws of 2021, item 1043, as amended), item 1, the acquisition of ownership of property or property rights by a spouse, descendants, ascendants, stepchildren, siblings, stepfather and stepmother is exempt from tax, if:  1) they report the acquisition of property or property rights to the competent head of the tax office within 6 months from the date on which the tax obligation arises under Article 6 paragraph 1 items 2-5, 7 and 8 and paragraph 2, and in the case of acquisition by inheritance - within 6 months from the date on which the court decision confirming the acquisition of the inheritance becomes final, subject to paragraphs. 2 and 4, and 2) if the object of acquisition by way of donation or donor's order is cash, and the value of property acquired jointly from the same person during the 5 years preceding the year in which the last acquisition took place, added to the value of property and property rights recently acquired, exceeds the amount specified in Article 9 paragraph 1 item 1 - document their receipt by proof of transfer to the purchaser's payment account, to his account, other than a payment account, in a bank or a cooperative savings and credit union, or by postal money order.

The taxpayer reports the receipt of a donation to the relevant tax office on the "SDZ-2" form, where the "H" field "method of transfer of funds by way of donation or donor's order" only includes the fields "bank account", "SKOK", "postal order".

In the jurisprudence of tax authorities and administrative courts, two opposing views have emerged in the context of the above method of documenting the receipt of a donation in terms of "proof of transfer to the buyer's payment account": liberal and restrictive.

A liberal view was presented by the Regional Administrative Court in Łódź (ref. I SA/Łd 861/19), which indicated that in the case of receiving cash from the immediate family, it is sufficient to deposit the money received in this form independently (by the recipient of the donation) into his own bank account for the application of the inheritance and donation tax exemption.

On the other hand, the restrictive approach was advocated by the Regional Administrative Court in Gliwice in its ruling ref. I SA/Gl 1570/19, stating that to take advantage of the gift tax exemption provided for the immediate family, the money must be transferred through a bank to the recipient's account and reported within six months. The payment must be made by the donor, not another person.

Supporters of the first view described above have so far pointed to a purposive interpretation of the tax exemption provisions and the intent of the legislature, which didn’t want to tax donations confirmed by payment into a bank account and reported in the proper form and time to the appropriate tax office.

In contrast, proponents of the opposing view, including the Supreme Administrative Court in a recent resolution, emphasize that the execution of a gift agreement occurs when the recipient receives the money in cash. This is the moment when inheritance and gift tax liability arise.

The cited latest controversial resolution of the Supreme Administrative Court - indicating a restrictive interpretation of Article 4a of the Inheritance and Gift Tax Act of July 28, 1983 (i.e., Journal of Laws of 2021, item 1043, as amended), by force of authority binding on administrative courts and tax authorities, on the one hand clears up previous discrepancies and indicates to taxpayers what they should expect when receiving a donation in a certain form, thus leading to a strengthening of the principle of legal certainty.

At the same time, however, it should be questioned whether the view of the Supreme Administrative Court leads to a deepening of the principle of shaping the confidence of citizens in state bodies and the laws they create.

This is because the content of the described resolution may, in practice, lead citizens to refrain from informing the relevant tax offices about the receipt of cash donations from immediate family members. This is because these are, as a rule, associated with the obligation to pay tax. As a further consequence, this may lead to a decrease in the level of knowledge of tax authorities regarding the amount of taxpayers' income and the legality of its sources.

It should be added that cash money constitutes an identical means of payment, measure of value and means of settlement as electronic money. Thus, the quoted provision of Article 4a of the Inheritance and Gift Tax Act of July 28, 1983 (i.e., Journal of Laws of 2021, item 1043, as amended) is at the same time a kind of trap for unaware taxpayers and their donors who make donations in cash form, not knowing that, unlike the form of bank transfer, it is taxable.

In light of the above, it remains to be hoped that the legislator, by means of an appropriate amendment, will change the wording of Article 4a of the Act of July 28, 1983 on inheritance and gift tax (i.e., Journal of Laws of 2021, item 1043, as amended) - in order to completely eliminate the interpretation doubts that have arisen, and above all to eliminate the phenomenon of the "gray market" of cash donations, about which the relevant tax offices will not be informed by taxpayers solely because of the resulting tax obligation.