Amsterdam Court of Appeal rules that, for the purposes of valuing the shares in a private limited company (BV) in relation to the residential properties forming part of the company’s assets, the WOZ value must be used.
No BOR
The first point of discussion concerns the question of whether the properties let by the BV qualify as a material business. If that is the case, the business succession scheme (BOR) may be applied to the acquisition of the shares (or share certificates) in the BV for the purposes of gift tax.
However, the recipient of the donated shares may not apply this conditional exemption because she has failed to demonstrate that the “labour-plus” and “return-plus” criteria have been met: namely, that, in respect of the properties requiring more labour than usual, a higher-than-usual return is achieved.
WOZ value
Valuation based on the WOZ value is the mandatory valuation of residential properties for the purposes of inheritance and gift tax. The Tax and Customs Administration takes the view that this valuation rule applies only to residential properties forming part of the donor’s private assets. It therefore does not apply to residential properties owned by a private limited company (BV) whose shares are being gifted. However, the Court of Appeal deduces from the purpose and spirit of the law that the valuation rule must be applied accordingly and that, in doing so, account must also be taken – on the basis of the vacancy value ratio – of the reduction in value resulting from the fact that the properties are let (this latter point is now somewhat less relevant, as in most cases the vacancy value ratio is equal to 100% of the WOZ value).
Deferred tax
When valuing the shares (or share certificates), account must also be taken of the deferred corporation tax on the difference between the fair value and the book value of the properties. On this point, the Court does not agree with the taxpayer. The taxpayer had put the deferred corporation tax at 25%, the nominal rate of corporation tax applicable in the year in question. The Court does not accept the argument that (some of) the properties must be sold in order to pay the gift tax. Furthermore, the Court considers that the imposition of corporation tax can be avoided by utilising the reinvestment reserve. The Court arrives at a deferred corporation tax liability of 15%, which is in line with the Tax and Customs Administration’s position and, according to the Court, was also the established practice in the year in question (2015).