Transactions involving immoveable property based in the Netherlands being purchased are liable for property transfer tax (= stamp duty land tax). Shares in a legal entity the bulk of whose assets is accounted for by immoveable properties are themselves regarded as immoveable properties, albeit only where it is the acquisition, divestment and/or exploitation of immoveable properties that the legal entity’s operations are made up of. The tax levied when shares in such a legal entity are acquired is dictated by the value of the property the shares stand for rather than by the value of the actual shares. This somewhat unusual mechanism has been specifically designed to foil transfer tax dodging by shifting an immoveable property to a legal entity whose shares are being transferred.
Transfer tax exemption is available for transactions involving assets forming part of a business being acquired by the business owner’s child in a family business succession scenario. This has been done with the aim of facilitating from a tax perspective the parent-to-child transfer of a family business.
A District Court ruling has now confirmed that the acquisition of the shares in a property company by the director-cum-controlling shareholder’s daughter should likewise qualify for transfer tax exemption. The company in question had been carrying on a material business operation. Had the property portfolio been operated under a sole tradership rather than a limited-liability company format, this would have rendered the transfer of the business from parent to child transfer tax exempt. The Court ended up ruling that the legal assumption by virtue of which shares were put on a par with immoveable property had not been designed with the aim of levying tax in a scenario which would have involved the acquisition of the underlying property being (transfer) tax exempt.
Dutch version: Vrijstelling overdrachtsbelasting voor aandelen in onroerendgoed-bv