A woman holds 20% of the certificates in a holding company. The operating company is subject to a ‘turbo liquidation’ and the business is transferred to her father as a sole trader. No one declares any income from a substantial interest. Years later, the tax inspector imposes additional tax assessments. The daughter argues that the accelerated liquidation means there were no gains and therefore no income from a substantial interest. The court rejects this argument.
From a private limited company to a sole trader
The father runs his business through an operating company under a holding company, of which he holds forty certificates. In 1994, he gifted sixteen certificates to his two children, eight to each. The daughter therefore holds 20% and thus has a substantial interest. With effect from 1 January 2018, the father wishes to continue the business as a sole trader. The operating company is dissolved via a ‘turbo liquidation’ – a rapid termination without liquidation, provided there are no assets. The accountant assumes a smooth transition but does not apply for a ruling. No AB income is declared in the 2018 income tax returns, even though liquidation normally results in a capital gain.
Sudden surge in wealth raises questions
In June 2019, the inspector issued the 2018 tax assessments in accordance with the tax returns. In December 2019, the operating company stated in its corporation tax return that it had been wound up. An audit reveals that no ‘silent return’ ruling had been applied for and that there was a claim of over two ton against the father. This represents value for the certificate holders. The corporation tax inspector alerted his colleague in the income tax department, and in October 2023, additional tax assessments were issued. The daughter and her tax partner each had to pay €22,246 in income tax on their AB income.
A new development or administrative negligence?
The daughter argues, first and foremost, that the tax inspector is not entitled to make a supplementary assessment. After all, the dissolution had been registered with the Chamber of Commerce and her status as a certificate holder was known. Furthermore, the sudden increase in assets of two ton in her father’s tax return, in which the debt to the private limited company had disappeared, should have raised the inspector’s suspicions. The court rejects both arguments. The corporation tax return in which the dissolution was mentioned was only submitted after the income tax assessments had been issued. The sudden increase in the father’s assets does not give rise to a duty to investigate the daughter’s tax returns. There is therefore a new fact.
Rapid liquidation without any proceeds?
According to the daughter, 'turbo liquidation' means there are no assets and therefore no distribution. The court swiftly dismisses this argument. A ‘turbo liquidation’ is only permitted if there are no longer any assets, but that does not mean that there were in fact no assets at all. The claim against the father indicates a value. How that value disappeared remains unclear. The daughter provides no evidence. At the hearing, the representative admits that it is ‘speculation’ as to how the matter was settled. The court therefore accepts the inspector’s calculation and upholds the additional tax assessments.