A bv receives compensation of almost €700,000 following civil proceedings. The amount is deposited into the managing director's private account. The inspector classifies part of the withdrawal as a surrender of self-administered pension. The dga argues that the compensation is not due to the bv at all. Moreover, he disputes that the assessment was imposed in time. Does the assessment stand?
Damages
A DGA holds all the shares in a PLC that has a pension liability towards him. The tax balance sheet value of this liability is €229,238. The bv suffers damage due to construction work by a construction company. Following civil proceedings and the bankruptcy of the construction company, the parties conclude a settlement agreement. The bv receives damages of €692,062. However, this amount is paid into a bank account in the name of the managing director himself. The inspector classifies part of the withdrawal as commutation of pension entitlements. The managing director disputes that the compensation belongs to the assets of the bv.
Assessment period
In addition, the dga argued that the assessment was imposed too late. This is because the inspector issued an information decision, which extended the assessment period. According to the director and major shareholder, this constituted an abuse of power. The court ruled that the assessment was imposed in time. The normal assessment period of three years was extended by the duration of the postponement granted and by the period between the information decision and its becoming irrevocable. There was no abuse of discretion, as the Court of Appeal had already ruled in earlier proceedings that the information decision was correct.
Redemption of pension
With regard to the compensation, it has now been established up to the Supreme Court that it is a taxable gain for the bv. As the amount was deposited in the private account of the dga and he does not intend to repay it, he has withdrawn the assets from the bv. The court ruled that the dga had withdrawn part of this amount as a surrender of self-administered pension. The surrender value was rightly taxed as salary from previous employment. It does not matter whether the director himself intended the withdrawal in this way. What is decisive is that the director and principal made a withdrawal from the BV, while the BV had a pension obligation towards him.
Directors with self-administered pensions should be aware that cash flows from the PLC to private may qualify as a surrender for tax purposes, with all the consequences that entails.