A director and major shareholder sells his shares for €5,000. The buyer also takes over his current account debt of €287,000. The tax inspector adds this debt to the transfer price and issues a supplementary tax assessment based on an AB income of over €274,000. The director and major shareholder considers this excessive, arguing that the debt could never have been repaid anyway. The Court of Appeal partly agrees with him. The debt is taken into account, but not at its nominal value.
Not under normal circumstances
The court ruled that the agreement was not concluded under normal circumstances. The director and major shareholder sold shares with an equity value of over €271,000 for just €5,000. The accountant did not include the profit reserves in his valuation. It follows that the director and major shareholder intended to favour the buyer. In such a case, the tax inspector may disregard the agreed price and base his assessment on the arm’s length value.
Debt is taken into account
The inspector argues that the debt assumed forms part of the consideration. He adds the nominal value of €287,419 to the sale price of €5,000 and deducts the acquisition cost of €18,151 from this. This gives him a tax-free benefit of €274,268. The director and major shareholder disputes this. He argues that the debt could never have been repaid and therefore represents no value.
Nominal value not plausible
The court does not fully agree with the inspector. Whilst it is true that the debt had risen to €287,419, this does not mean that its value is equal to this amount. The debt was not due and payable, no interest was payable and no security had been provided. Furthermore, at the time of the sale, the director and major shareholder was 54 years old and suffers from health limitations. The Court of Appeal considers it plausible that the debt would have been largely uncollectible.
Equity as a benchmark
The director-shareholder claims that the value of the debt is nil, but he fails to substantiate this either. This is because he owns his own home with a WOZ value of €249,000 and a mortgage debt of €200,000. This results in €49,000 in equity. The Court of Appeal sets the value of the debt at this amount. The AB benefit therefore amounts to €35,849, being the sale price of €5,000 plus the value of the debt of €49,000, minus the acquisition price of €18,151.