The SME profit exemption is also applicable to the profit which is recognized in the year in which the business transfers from a sole tradership or partnership to a company.
The Supreme Court disagreed with the Court of Breda in ruling that the partner of a general partnership was entitled to the SME profit exemption after transferring the partnership into a company. It did not matter that the business in question was transferred to a limited liability company in 2007, and thus the exepmtion would apply with retroactive effect to 1 January 2007. The Supreme Court considered that the legislator was aiming to achieve the same effect as a tariff reduction with the introduction of the SME profit exemption. According to the Court it was therefore obvious to apply the profit exemption to the total revenue which the business had. The entrepreneurship requirement for the application of the SME profit exemption is only intended to shut out other claimants, according to the judge (Article 3.3 of the Income Tax Act 2001). Therefore according to the Supreme Court the SME profit exemption also applies to instances in which a profit arises in a year which follows a year in which the business has unlimited liability. According to the judge there is no reason to believe that the legislator had other intentions. The Supreme Court agreed with the partner and they were eligible for the SME profit exemption.
Law: Article 3.79a Income Tax Act 2001
Further information: Supreme Court, 12 October 2012, LJN: BX0947