Court of Appeal of Den Bosch has ruled that the transfer of a car by a private limited company to a director and major shareholder for a consideration lower than its market value (“dividend distributions”) does not constitute an abuse of rights. We recently described a ruling in which the Amsterdam Court of Appeal did find that there had been an abuse of rights. The case before the Den Bosch Court of Appeal follows on from the judgment of the Zeeland-West-Brabant District Court, which we describe in our article Divided car not an abuse of right.
Timeline
The main difference between the two cases appears to be the timeline. The case in which the Court of Appeal in Den Bosch ruled concerns a Volvo purchased by the private limited company on 29 December 2015. On 29 December 2020, the company sold the car to its director and major shareholder for €2,190, plus €434 in VAT. The difference between this amount and the Volvo’s valuation of €29,750 is treated as a disguised dividend (€27,126) and is subject to dividend tax and income tax.
The Court considers that an abnormally low fee alone cannot constitute an abuse of rights. Furthermore, in this case, the Tax Authorities have not established any facts or circumstances to suggest that the agreed (low) remuneration is the result of an abuse of rights. Nor does the Court see any clear pattern of transactions or a purely artificial arrangement.
Dividend
The Tax and Customs Administration had also argued that the disguised dividend should be regarded as part of the consideration on which VAT is payable. The Court of Appeal considers that this can only be the case if the dividend constitutes specific consideration for the supply of the car. The mere fact that a hidden dividend has been treated as such for the purposes of corporation tax, income tax and dividend tax is not sufficient to establish such a direct link.
Case law shows that when the dividend is formalised (in a shareholders’ resolution recorded in the minutes of a general meeting), it does constitute consideration for the purchase of the car on which VAT is payable.