Negative ruling highlights pitfalls of pre-deal carve-outs through partial demergers

Written by Nancy De Beule 29 January 2019


In a recent decision, the Belgian ruling office rejected a pre-deal carve-out of real estate through a tax neutral partial demerger followed by a tax exempt transfer of shares of the operating company. Though the ruling does not particularly divulge novel views, it has the merit of highlighting common pitfalls related to these type of transactions.

The facts can be summarised as follows: Company A, an operational company tax resident in Belgium, holds real estate that is partly used by the company and partly rented out. In the context of a transfer of the business, it is contemplated to carve-out the real estate to a newly established Belgian property company – isolating the operational activities from the real estate – and to subsequently transfer the shares of Company A to a future buyer.

Not surprisingly, the ruling office sees the following obstacles in granting a positive decision: (a) the transaction is not triggered by ongoing discussions with potential buyers, (b) there are seemingly no sound business reasons for the partial demerger, (c) the shareholders-individuals have no intention to re-invest the proceeds of the share deal in the business and (d) the successive events clearly aim to re-engineer a taxable asset deal into a series of tax neutral / tax exempt transactions, which is viewed as tax abuse.

This decision displays that sheer tax planning disconnected from any business reality is long over. Structuring a deal requires careful consideration as the operational, commercial and financial context of a transaction delineates the structuring alternatives.

 

For more information, feel free to contact jurgen.coessens@pwc.com or nancy.de.beule@pwc.com

Contact us
Partner, M&A Tax Leader Belgium
+32 3 259 3125