The Advocate General (A-G) to the Supreme Court has concluded That the “look-through approach” should not be used in the context of valuing depositary receipts.
The case
The case concerns a father who donates depositary receipts for shares in a BV to his daughter. The latter obviously owes gift tax on the gift obtained and, in that context, the value of the certificates obtained must be determined. The BV's assets include a property portfolio, consisting mainly of rental properties.
Valuation rules
If the daughter had been gifted not the depositary receipts for shares in the BV but the (rented) houses of her father, the valuation of the gift would have taken place with the following in the Succession Act included flat-rate valuation rules (which often arrive at a lower value than the appraised fair value):
- WOZ value (real estate acquired for the purposes of inheritance and gift tax, which is used as a residence, must be valued at the WOZ value of the year of acquisition or the following year);
- vacancy rate (in respect of dwellings let with rental protection, a lower value may be taken into account).
The subsidiary applies these valuation rules when valuing its acquired depositary receipts. In doing so, it invokes the so-called look-through approach. This approach implies looking through the (depositary receipts for) shares and valuing them as if she had not acquired these depositary receipts, but the (rented) houses.
The A-G does not agree. While the A-G is of the opinion that WOZ values and void value ratios can be a practical tool when valuing shares in a real estate company, provisions with fictions and lump sums should not be interpreted extensively.
Of course, the final verdict is now up to the Supreme Court. Previous rulings on the look-through approach do not, in our view, seem to indicate that the Supreme Court will disregard the A-G's opinion.