A BV holds a shareholding in an Isle of Man-based Ltd that rents out a yacht. The Ltd is liquidated and the parent company of the tax group wants to deduct over €6 million liquidation loss. The inspector refuses the deduction. According to him, the Ltd's business had already ceased when the bv was included in the fiscal unity. The liquidation loss can then only be set off against the profit of that bv itself.
From luxury yacht to liquidation
The Ltd has been operating a yacht since 2005. Its activities consist of rentals to related parties and third parties. The Ltd has been structurally loss-making since its establishment. A Dutch bv provides loans to the Ltd to offset the losses and converts them into capital in 2013. In 2017, the yacht is only leased to the shareholder and a related party. From August 2017 to April 2018, no leasing takes place. From 1 April 2018, the bv is merged into a fiscal unity. In December 2018, the yacht is sold to the shareholder. The Ltd is dissolved on 4 November 2019 without a liquidation distribution.
Six million deduction or zero?
The parent company of the fiscal unity claims a liquidation loss of over €6 million and wants to set this off against the profit of the entire fiscal unity. The inspector argues that the liquidation loss can only be deducted to the extent that the profit is attributable to the BV that held the participation. The business of the participating interest was wholly or almost wholly discontinued at the time of its inclusion in the fiscal unity.
No rental, no business
The court ruled that it was for the parent company to prove that the Ltd's business had not yet ceased wholly or substantially at the time of joinder. The parent company argues that turnover did not fall to less than 10% and claims to have made efforts to rent out the yacht, but provides no evidence to that effect. The liquidation loss can therefore only be deducted to the extent that the profit is attributable to the bv. However, that bv achieved a negative result in 2019, so the liquidation loss is not deductible.