Tax Alert

Court of appeal rules: Share deal no abusive practice

Local contact

EY Belgium Tax

5 Mar 2019
Subject Tax alert
Categories Indirect Tax
Jurisdictions Belgium

Recently 2 landmark cases have been ruled by the Court of Appeal in Antwerp confirming the taxpayer’s position on the qualification of a (VAT exempt) share deal in the framework of the transfer of shares of a real estate company.

In both cases the tax administration argued that the (VAT exempt) sale of shares of a real estate company (in the cases at hand Special Purpose Vehicles – ‘SPV’) was abusive practice and/or fraud as the taxpayer would have aimed to mask underlying real estate development fees which would be subject to VAT. The tax authorities assessed VAT on the profits of the SPV’s and imposed a 200% penalty.

In line with lower court rulings the Court of Appeal now confirmed the position of the tax payer and annuls the VAT assessment (and penalties) considering the following:

  • A diligent review of the contractual arrangements showed that no artificial setup or simulation can be demonstrated. A contrario, the Court agrees with the position that the SPV conducted an (own) business, concluded contracts in its own name (a.o. building licenses, order forms, rights in rem, rental agreements, shareholders agreements,…) and thus was exposed to entrepreneurial risks.
  • One of the principal conditions set out in the public tender required for participating parties (i) to allow the possibility for the public body involved to participate in the share capital of the real estate company and (ii) as well as the terms and conditions how the share deal will be established in terms of pricing etc.
  • Court also stipulates it is common practice in the real estate development business to streamline the workflow via a separate legal entity and moreover that the transfer of shares of such an entity can be considered as a conventional economic transaction.
  • Finally the Court referred to earlier settled ECJ case law (o.a. Halifax, C-255/02) confirming that there is no legal VAT provision forcing a tax payer to opt highest taxed (VAT) transactions if multiple scenarios are legit.

It is well known in the sector that the tax authorities are vigilantly screening share deals (of real estate companies) and tend to qualify such deals either as the mere sale of immovable goods or as taxable real estate development fees. Not only from a VAT perspective, but also for corporate income tax and real estate transfer tax purposes, the tax treatment of a share deal remains significantly different and beneficial when compared to a mere asset deal. The border between both can however be very thin and one should indeed be aware of increased audits on share deals.

A diligent legal and administrative structuring of the project remains important to avoid disputes on the tax qualification of the deal. In addition it should be taken into account that the execution of the project should be performed in line with the contractual supporting documentation to avoid adverse tax consequences.

EY has multidisciplinary real estate sector teams who are following up on these tax developments closely. Do not hesitate to reach out to them or to your regular contact should you want to discuss.