Extraterritorial Operations of Family Foundations: An Analysis of Cross-Border Territorial Unit Establishment
Introduction
The enactment of Poland’s Family Foundation Act on January 26, 2023, introduced a novel instrument for succession planning and family wealth management within the Polish legal framework. Among the practical questions arising from family foundation operations, the possibility of international expansion through the establishment of territorial units beyond Poland’s borders presents particularly complex interpretative challenges. This issue requires comprehensive legal analysis that considers both the territorial unit framework provided under Polish law and the inherent limitations flowing from the juridical nature of family foundations.
Territorial Units Under Polish Family Foundation Law
Statutory Framework
Article 10 of the Family Foundation Act provides laconically that “[a] family foundation may possess a territorial unit or territorial units.” This deceptively simple provision generates numerous interpretative questions, particularly regarding the scope of permissible cross-border operations.
Juridical Nature of Territorial Units
Territorial units of family foundations possess distinctive legal characteristics that differ fundamentally from commercial branch establishments under corporate law. Rather than constituting separate legal entities, territorial units represent organizationally distinct components of family foundation activities located away from the foundation’s principal seat. Territorial units lack independent legal personality and remain entirely dependent upon their parent family foundations, constituting integral elements of the foundation’s organizational structure.
Territorial unit operations derive their authority from family foundation governing documents. Pursuant to Article 26(3)(4) of the Family Foundation Act, foundation articles may expressly provide for territorial unit establishment. Where governing documents contain no such provisions, territorial units may be established during foundation operations through beneficiary assembly resolutions under Article 72(5).
Cross-Border Territorial Unit Establishment: Competing Arguments
Arguments Supporting Extraterritorial Permissibility
The literal text of Article 10 contains no territorial restrictions regarding territorial unit locations. The provision employs the neutral term “territorial unit” without specifying that such units must be situated within Polish territory. This formulation arguably suggests that the legislature did not preclude the possibility of establishing territorial units beyond national borders.
Moreover, family foundations, as legal persons, possess legal capacity enabling them to undertake transactions of a transnational character. They may acquire foreign real property, enter contracts with foreign entities, and conduct permissible commercial activities abroad. Within this context, it appears logical that foundations might organize their structures to correspond with the geographic distribution of their activities.
Countervailing Systemic Arguments
Substantial arguments militate against such interpretation. Family foundations constitute entities established under Polish law, created pursuant to Polish legislation, and subject to Polish jurisdiction. Their principal seats must be located in Poland, with their activities subject to Polish registry supervision.
Article 117 of the Act, which mandates registry inscription of “seats and addresses of family foundation territorial units,” presents particular difficulties. The family foundation registry operates under Polish court supervision, which exercises oversight according to Polish legal standards. Inscribing foreign territorial unit seats in Polish registries could generate significant practical and legal complications, notwithstanding that the legislature likely contemplated domestic units—though the provision does not definitively resolve this question.
Private International Law Considerations
International Legal Framework Asymmetries
The legal situation becomes more complex when considering that while Polish legislation does not expressly authorize foreign territorial unit establishment, foreign legal systems need not oppose such arrangements. International legal standards demonstrate widespread acceptance of cross-border structures established by entities from other jurisdictions.
Reciprocity Principles in International Practice
Polish law under Article 19 of the Foundation Act expressly permits foreign foundations to establish representative offices in Poland upon obtaining ministerial authorization. The principle of reciprocity, fundamental to private international law, suggests that if Poland accepts foreign foundations within its territory, other states might adopt similar approaches toward Polish family foundations. Refusing such reciprocity would require special justification absent from international practice.
Permanent Establishment Implications
Family foundations may unquestionably acquire foreign property and consequently may establish permanent establishments for tax purposes. General principles suggest that tax permanent establishments should possess corresponding corporate structures. While permanent establishment existence does not depend upon manifestation as a foreign legal entity branch, systemic considerations support the proposition that permanent establishments should, or perhaps must, function as formal branches.
The relationship between permanent establishments and corporate structure presents additional systemic arguments. Family foundations acquiring foreign property and conducting activities abroad may automatically create permanent establishments within the meaning of double taxation treaties. Permanent establishments should possess corresponding organizational structures; otherwise, incongruence develops between tax and legal realities. Permanent establishment presence without formal organizational structure may generate unnecessary complications in relations with local tax and regulatory authorities.
Practical Considerations
Practical considerations also support formalizing foreign presence. Local administrative authorities, banks, counterparties, and courts naturally tend to expect locally recognizable organizational forms. Operating through formally established territorial units enhances transparency, facilitates communication with local institutions, and reduces risks of unnecessary administrative complications that might arise from conducting activities within an organizational “legal vacuum.”
Conclusion
The question of family foundation authority to establish foreign territorial units remains legally unresolved. While the literal text of Article 10 of the Family Foundation Act does not preclude such possibilities, numerous systemic arguments support restrictive interpretation of this provision.
Until clear interpretative guidance emerges, family foundations contemplating foreign expansion through territorial unit establishment should exercise particular caution, preferring established and legally secure forms of international activity. Definitive resolution of this issue will likely require either judicial interpretation or legislative intervention through Family Foundation Act amendments that would clearly delineate the territorial scope of territorial unit operations.
The prudent approach for family foundations seeking international presence involves utilizing proven alternative structures while monitoring legal developments that might clarify the territorial unit establishment question. Such an approach maximizes operational flexibility while minimizing regulatory uncertainty inherent in novel legal interpretations
