The Zeeland-West Brabant District Court confirms that dividing a car does not qualify as an abuse of rights. The tax authorities will no doubt appeal (or leapfrog) this ruling.
Dividends
The case concerns a Volvo purchased by a BV at the end of 2015 for €93,400 (including VAT). This car is used for business and private purposes. An annual VAT adjustment is made for private use. At the end of 2020, the BV sells the car to its director-major shareholder (dga) for €2,624 (including €125 in residual BPM and €434 VAT). The Volvo dealer valued the car at €29,750.
In its VAT return, the BV deducts VAT from the appraised value (this amounts to a remittance of €5,141). But in its objection, the BV argues that the VAT to be remitted is only €434, being the VAT from the sale price of €2,624.
The difference between the appraised value and the sale price is a hidden dividend distribution, on which the DMS owes income tax in box 2 (substantial interest tax). This is why the act described above is referred to as “distributing”.
Abuse of law
The tax authorities first took the position that there was no delivery for valuable consideration. The Court rightly made short shrift with this argument: after all, the €2,624 fee paid by the DGA is directly opposed to the delivery of the car.
The next contention is that there is an abuse of rights because the combination of legal transactions would result in only a fraction of VAT being levied in the end. However, the court decides that there are no artificial transactions, but a purchase agreement under which the car is transferred for a consideration.
The court also pointed out that the legislator has the option of adding to the law a provision under which, in affiliated relationships, the remuneration is adjusted to normal value (Article 8(4) of the Turnover Tax Act 1968).
The Tax Office's latest contention is that the disguised dividend payment should be regarded as the consideration for VAT. However, European case law is clear on this issue: dividends cannot be regarded as remuneration for a service for VAT purposes. Incidentally, the situation would be different if a formal dividend distribution had been made.