A veterinarian contributes his practice to a private limited company and values the goodwill at €400,000. Shortly before, an investor had offered more than €3 million. The court ruled that the vet could not simply ignore that offer.
Investor knocks on the door
A veterinarian runs a veterinary practice with his parents. In early 2020, a large international investor comes forward with an interest in acquisition. After exchanging figures, an offer of €3.3 million plus a bonus for future growth follows in August 2020. The family signs a letter of intent, but drops out during the due diligence. It does not want to hand over the practice after all.
Practice transferred to bv
Four months later, the family transfers the practice to BVs. They opt for what is known as a silent contribution: the capital gain from the practice is taxed immediately, in exchange for a higher book value in the bv. The vet values his share based on the so-called multiple method, a common calculation method in the industry. This involves multiplying the amount of the assumed annual profit by a capitalisation factor. The total goodwill comes out at €400,000. This limits the profit to be deducted in the tax return.
Sold a year later
In summer 2021, the family reports again to the same investor. Now an offer of €5.3 million follows. After investigation, the practice is sold for €4.7 million plus growth bonuses.
The inspector questions how the practice could be worth €400,000 in December 2020, when a serious buyer had offered €3.3 million shortly before. He increases the goodwill to €4.7 million and imposes a hefty assessment.
What a buyer offers is the benchmark
The court explains what 'fair market value' means: the price the highest bidder would pay. The August 2020 bid shows that this value was around €3.3 million. The €400,000 value used by the vet is not defensible. His calculation method did not take into account the growth opportunities the investor saw. The argument that the family did not intend to sell at all is irrelevant. When contributing to a BV, what matters is the objective value, not the owner's plans. The court ruled that the vet deliberately understated the value. He should have known that ignoring a concrete offer would lead to a much too low declaration. The inspector assumed the 2021 sale price, which the court also ruled was not realistic. Between the contribution and the sale, a competitor in the area quit, increasing the expectation of future sales. That increase in value did not yet exist on the contribution date. The court estimated the value at €4 million: the midpoint between the 2020 bid and the final sale price.