A few years ago, the special tax inspectorate ("BBI"/"ISI") launched an investigation into a number of companies involved in various real estate projects. The taxman considered that sales of shares in real estate companies (mostly special purpose vehicles) constituted fraudulent and abusive transactions both for VAT purposes and for corporate income tax purposes. The taxman taxed the shareholders of real estate companies selling their shares to independent investors either on the capital gains realised (arguing that such gains disguised considerations for project development services) or even on the entire value of the underlying real estate (arguing that, in reality, there was a transfer of the underlying real estate). The taxman has even imposed sanctions of 200% in both income tax and VAT. The score after several cases at first instance is 8:0 to the taxpayer – but the finals have not been played yet, and taxpayers need to be very prudent and properly advised when designing, setting up and implementing real estate project structures.
Between June 2017 and June 2018, the courts of first instance of Antwerp and Brussels rendered eight important decisions in cases where Eubelius has assisted the selling shareholders facing tax claims from the special tax inspectorate. Needless to say, these pilot cases are of paramount importance for the entire real estate sector, which considers the sale of companies holding real estate as part of its everyday business activities.
Both courts have thoroughly examined the underlying facts and agreements and have agreed with the defence put forward by the selling shareholders, considering the transactions to be normal and justified from a business perspective. Where the special tax inspectorate invoked simulation, the courts held that the share transfers and the prices paid did not disguise any other transaction (such as compensation for project development services and/or transfer of real estate). All of the taxman's claims, both for VAT (six of the eight judgments) and corporate income tax (two judgments), were dismissed, and the tax assessments were annulled. The tax administration has already agreed not to appeal two of the judgments (VAT), but has filed appeals in four of the other six matters. The finals are therefore yet to be played in many of these cases, and many other comparable test cases are still pending before the Dutch-language courts in Antwerp, Brussels and Ghent.
Although the taxman's claims so far have been dismissed, these cases clearly demonstrate that the tax inspectorate is rigorously and thoroughly investigating real estate development projects, their contractual preparation, set-up and execution, and their economic aspects.
Hence, companies involved in the real estate business must ensure that all documentation related to any real estate project is carefully drafted, including in the preparatory and bidding phases for public procurement projects and negotiations with non-government investors, in pre-contractual and negotiation phases, in the drafting of – inter alia – memoranda of understanding, financing agreements, share purchase and/or option agreements, project development and building agreements, and in the various stages of the execution of the project and the cash flows related thereto. They should also ensure that the companies concerned act accordingly and in a consistent manner.
Please feel free to contact us if you would like any further information or advice.