Joint ownership between a company and its shareholder … Not a good idea

Whoever owns real estate together with another person can put an end to that co-ownership by resigning from joint ownership. Depending on the location of the property, the distribution right amounts to 2.5% in Flanders or 1% in the other two regions. However, if you are a co-owner, together with your own company, you pay a sales tax of 12% or 12.5%. Why is that?

'Historic' partners

You have an NV (a capital company) and suppose that NV owns a building. If the NV is liquidated and you are allocated the building, sales tax is due. Even if you recover the building that you contributed yourself during this liquidation. This sales tax amounts to 12% in Flanders and 12.5% in the other two regions.

If you are a partner in a BV (a partnership) and you receive the real estate during the liquidation, there are two options:

If you were not a partner at the time the BV acquired the property, you pay sales tax.

If you were already a partner when the BV (or previously, BVBA) bought the building, or if you contributed the building yourself, then you are a 'historic' partner and you will end up in the waiting arrangement.

Such waiting arrangement means that you only have to pay a fixed fee during the liquidation. The tax authorities then wait for what will happen next:

If you acquire the building with other partners who are all historical partners, you can withdraw from joint ownership and only a distribution right is due.

However, if the building ends up with someone who is not a historical partner, then sales tax becomes due.

Back door is a dead end street

In an NV you therefore do not escape the sales tax unless, … maybe …

About ten years ago, the trend arose to purchase real estate as a shareholder together with the company. For example, you buy 10% of the whole – on which you then have to pay the sales tax – and your company buys the other 90% – on which the sales tax is also due, but that amount is deductible as a professional expense.

After many years, for example if you want to stop the company, you will no longer share ownership and take over the company’s share. Is a distribution right on that transaction sufficient?

“No” say the tax authorities. The regulation concerning the partners who acquire immovable property from their own company is a special scheme, intended as an anti-abuse provision. And that anti-abuse provision takes precedence over the general distribution law scheme. The term 'tax' here refers to both the federal tax authorities (which are still partially competent for the stamp duties) and Vlabel, which is competent for the Flemish stamp duties.

From first instance, over Cassation to the Constitutional Court

A lot of ink has been spilled on this interpretation. Many taxpayers went to the courts and tribunals, to end up before the Court of Cassation. One of the arguments invoked was the violation of the principle of equality. However, that is not the competence of the Court of Cassation, but of the Constitutional Court. The principle of equality appears to have been violated in the sense that the partner in joint ownership with his own company must pay a sales tax. While only a distribution right is claimed from someone else, who is not a partner and who is in joint ownership with the same company.

However, the Constitutional Court considers that this distinction is justified, because the rule that a sales tax is due if the partner removes real estate from his own company, is an anti-abuse provision, which effectively takes precedence over the distribution right. One rightly asks what abuse is fought here. After all, when the property was purchased, the duties were paid, partly by the company and partly by the partner. But the decision of the Constitutional Court puts an end to these discussions. Co-ownership between the company and one of its partners is therefore best avoided.