The Court of Appeal in The Hague has, in a civil proceedings rules that the deferred AB claim must be determined on the basis of the nominal AB rate.
Case study
The case concerns a father who died in 2015. The heirs are his wife (the mother) and three sons. A fourth son was disinherited by his father. This son is claiming his statutory share. This is the legal share of the estate to which a child is entitled. A child cannot be disinherited of this amount.
AB
The abbreviation AB stands for ‘substantial interest tax’. This is income tax levied on benefits derived from shareholdings of 5% or more of the outstanding capital of entities. The father’s estate includes such a substantial interest. The notional capital gain arising from his death was not settled but passed on to the heirs. As a result, the heirs will have to pay the AB tax at some point in the future.
Value
In order to determine the legitimate share of the disinherited son, the shareholding must be valued. Naturally, the tax liability assumed by the heirs must be taken into account in this regard. The higher this liability, the lower the value of the shareholding and the lower the value of the statutory share.
The mother therefore argues that the AB claim should be taken into account at the nominal rate. This is the rate that the heirs will actually be liable to pay at any given time. In 2015, this rate stands at 25% (this rate has since been increased to 26.9%, and a further rate increase, with effect from 1 January 2024, forms part of the tax plans for 2023).
The disinherited son takes the view that the AB deferral should be taken into account against the present value. As the AB tax is not payable immediately but at a (much) later date, the present value is (considerably) lower than the nominal value. A lower value for the AB deferral results in a higher value for the legitimate share.
Valuation method
As already mentioned, the Court has ruled that the AB latency must be taken into account on the basis of the nominal rate. In reaching this conclusion, the Court relies, amongst other things, on a ruling of the Supreme Court from 2006. It is important to note that this ruling by the Court is (partly) based on the method used to value the shareholding. This valuation was carried out using the so-called DCF (Discounted Cash Flow) method. Under this method, the valuation consists of the present value of future cash flows. According to the Court, if the present value were also to be used in the valuation of the deferred AB levy, the present value would be applied twice.