A construction company invests in a seagoing vessel through a subsidiary limited company and applies random depreciation. The parent company includes the subsidiary in the tax group. Some years later, it turns out that the investment was accompanied by a participation agreement with a price agreement for the later sale of the shares. The inspector argues that this never created a fiscal unity. Does the mother actually own the beneficial ownership of the shares in her daughter?
Structure
A BV heads a tax group for corporation tax purposes. A joined subsidiary operates a construction company. This subsidiary establishes a new company together with a shipping company to invest in a seagoing vessel. The new company joins as a limited partner in a limited partnership that operates the vessel. The parent company requests that the new company be included in the fiscal unity. The inspector issues a decision with an effective date of 29 September 2011. Through the fiscal unity, the mother deducts the arbitrary depreciation on the vessel and operating losses.
Participation agreement
After incorporation, the parties enter into a participation agreement. In it, the parent gets the right to offer the shares to the shipping company after three years. The purchase price is calculated according to an attached calculation model. This model works remarkably: with a higher appraisal value of the ship, the purchase price for the shares decreases. Indeed, an opposite change in the valuation of the deferred tax asset mitigates the change in value of the vessel. The inspector only discovers the participation agreement during a third-party investigation at the shipping company in 2014.
Economic ownership missing
The inspector imposes retrospective assessments. The court rules that due to the price agreement, the mother bears only a limited risk of change in value. Therefore, the mother does not hold beneficial ownership of at least 95% of the shares. Thus, the tax unity was never created. The court also rejected the reliance on the principle of legitimate expectations. The mother provides incorrect information on beneficial ownership in the joinder application. It should reasonably have known that this would prevent the inspector from properly assessing the application.