A bv has a substantial receivable from its dga. The bv takes no action to collect the claim, even though it is clear that the dga cannot repay it. The inspector argues that this inaction amounts to pricing in the receivables and thus constitutes a profit distribution. The dga disputes this. Without a formal waiver, there is no pricing.
Loan from bv
Over the years, a dga borrows hefty amounts from his PLC to buy a home in the Netherlands, a property in Spain and securities. In addition, a current account debt accrues. At the end of 2014, the total debt amounts to over €2.3 million. The bv's profit reserves amount to around €2 million. Correspondence with the tax authorities shows that the dga cannot pay off the debts. The value of the securities has decreased, the Dutch home was sold without the proceeds being used for repayment and the dga emigrates to Spain in 2014. The inspector imposes additional tax assessments for 2012 and 2014.
Sitting still
The inspector argues that the bv relinquished its rights as a creditor by not taking action, while an independent third party would. This improper inaction constitutes a profit distribution, according to the inspector. The director advocates a formal-legal approach: only when the debt is waived or liquidated does it become relinquished. Just sitting still is insufficient for this. The court annuls the additional assessment assessments. The inspector appealed.
Price
According to a Supreme Court ruling of 13 January 2023, a loan after being granted can still constitute a discharge if the PLC relinquishes its rights as a creditor. From previous case law, the court deduces that mere inaction is insufficient for relinquishment. Only when the claim is extinguished in a formal-legal sense, e.g. by waiver or liquidation, is there a relinquishment. The bv has not taken any active actions showing formal relinquishment. Therefore, the total debt does not constitute profit sharing. However, the court did rule that the annual increase in the current account debt in 2012 and 2014 constituted a profit distribution. After all, at the time of crediting, it was certain that the managing director could not or would not repay those amounts.
Profit sharing
The mere failure to collect a claim is not yet an award. This requires a formal act, such as waiver. New current account withdrawals can, however, immediately qualify as a distribution if at that time it is certain that the director and major shareholder cannot or will not repay. Directors with mounting debts to their PLC would be wise to assess the situation in time.