18 set 2024
The tax authorities have confirmed that a specific scheme for a shareholder's exit and generational transition does not constitute tax evasion.
The process involves shareholders transferring their shares to new single-member holding companies, which then purchase the shares of the exiting shareholder using bank financing.
The holdings repay the loans with dividends from the operating company.
This method is deemed legitimate and does not provide undue tax advantages.
The scheme ensures a smooth exit for the departing shareholder and facilitates the generational transfer of shares without triggering adverse tax consequences.
The tax authorities have validated a scheme designed to facilitate the exit of a dissenting shareholder and prepare for a generational transition, confirming its compliance with tax regulations.
This process involves several key steps:
1. Shareholders who wish to continue the business transfer their shares to newly established single-member holding companies under the tax neutrality regime specified in Article 177, paragraph 2-bis, of the Tuir.
2. These holding companies, using bank financing, purchase the shares from the exiting shareholder, which have been revalued according to Article 4 of Law No. 448/2001 and its subsequent reiterations.
3. The holdings then repay the bank loans using dividends distributed by the operating company.
The tax authorities' response to inquiry 169/2024 underscores several important principles.
Firstly, the initial transfer of shares to the holding companies does not result in an undue tax advantage.
This step is essential for setting up the holdings, which will then facilitate the purchase of shares from the exiting shareholder and organize the generational transfer.
The sale of revalued shares by the exiting shareholder is classified as an "atypical" exit, involving the sale of shares to other shareholders or external parties.
In this scenario, the proceeds are considered capital gains rather than capital income, allowing the use of the revalued cost basis as per Article 4 of Law 488/2001.
This classification ensures that the transaction does not provide an undue tax benefit and is a legitimate means for the shareholder's final exit from the company.
Lastly, the ability of the holding companies to repay bank loans using dividends from the operating company does not confer any undue tax advantage.
This method has been previously clarified in response 4/2021 and is not considered a case of cash out, as reiterated in response 156/2022.
Critical Aspects and Potential Issues:
- Ensuring compliance with the specific provisions of Article 177, paragraph 2-bis, of the Tuir.
- Accurate revaluation of shares according to Article 4 of Law No. 448/2001.
- Proper classification of the transaction as an "atypical" exit to avoid requalification by tax authorities.
Common Pitfalls and Errors:
- Misinterpreting the tax neutrality provisions.
- Incorrectly valuing the shares, leading to potential disputes with tax authorities.
- Failing to document the transaction adequately, which could result in reclassification as a "typical" exit.
Suggestions and Useful Tips:
- Consult with tax professionals to ensure compliance with all relevant tax laws and regulations.
- Maintain thorough documentation of all transactions and valuations.
- Regularly review and update the revaluation of shares to reflect current market conditions.