Contributing personal property to the communal estate followed by a gift is not tax abuse

The Ghent court has overruled the Flemish Tax Administration in two rulings on its view and application of the anti-abuse provision when a property is contributed to the communal estate, followed by the gift of that same property. An overview.

Example

Anne inherited an apartment on the coast from her parents. This apartment is worth €600,000. If Anne wishes to gift this apartment to her son Steven, the gift tax amounts to €90,000.

Anne, who is married under the statutory regime, is therefore considering first bringing this apartment into the communal estate, whereupon she and her husband Pieter will make the gift to Steven. In this case, each parent gifts a value of €300,000, on which a total gift tax of €45,000 would be levied. Thus a simple operation halves the tax.

Vlabel’s position

Vlabel’s Circular 2015/1 contains a list of acts that are considered by the Flemish Tax Administration as instances of tax abuse. This list also includes the contribution of an asset to the communal estate by one of the spouses, which is followed immediately or within a short period of time by the gift of this asset to the descendants.

Suspected tax abuse

Vlabel blacklisted this act because, in its opinion, this arrangement contravenes the progressiveness of the gift tax and therefore constitutes tax abuse within the meaning of Art. 3.17.0.0.2 of the Flemish Tax Code (VCF).

According to Vlabel, the taxpayer must show that the choice to contribute a property to the communal estate prior to the gift is justified by motives other than avoiding higher gift taxes. If that proof is not provided, then gift tax is levied as if no contribution had taken place and therefore on the entire property as a whole.

In the two cases we explain below, Vlabel calculated the gift tax without taking into account the contributions made. That way, the progressiveness of the rates could once again come into full play, according to Vlabel. However, the court overruled the Flemish Tax Administration in both cases.

Ruling of 8 June 2021

The facts

A spouse contributed five properties to the communal estate. This act was followed seven months later by a gift of the bare ownership of four of those properties by the spouses to both of their daughters.

Judgment

In the ruling, the court stated that the provision of Art. 3.17.0.0.2 of the Flemish Tax Code had already been reviewed by the Constitutional Court against the principle of legality in tax matters. According to the Court, this anti-abuse provision involves a system of proof and rebuttal.

• First, Vlabel must prove that the taxpayer has committed a legal act or set of legal acts that violate the purpose and intent of a specific provision of the Flemish Tax Code and are intended to avoid taxes.
• Only then is it up to the taxpayer to provide proof to the contrary and to demonstrate that the disputed transaction was chosen for motives other than tax avoidance.

In this case, the court found that Vlabel failed to provide that evidence. The court concluded from this that the anti-abuse provision could not be applied.

Moreover, the court pointed out that an anti-abuse provision is not intended to deny certain advantages. It is not up to Vlabel to interpret at its own discretion what does or does not fall under the law.

Ruling of 5 May 2022

The facts

Two spouses first changed their matrimonial property regime from community of acquisitions to the regime of universal community of property. Then, on the same day, they gifted the bare ownership of their family home to their only daughter.

Judgment

In this ruling, the court reiterated that the system of proof and rebuttal set forth by the Constitutional Court must be complied with in order for the anti-abuse provision to apply.

But the court went a step further. It argues that Art. 3.17.0.0.2 of the Flemish Tax Code is a clear law, which should also be strictly interpreted because of the public policy of tax law. There is tax abuse only if the taxpayer himself performs or (in)directly collaborates in the contested legal act. In this case, the taxpayer is only the donee and does not alter the matrimonial regime.

Since the taxpayer in this case did not perform such a legal act, she does not fall under the application of the general anti-abuse provision. There can be no tax abuse because one of the constitutive elements of Art. 3.17.0.0.2 of the Flemish Tax Code was not fulfilled.

Vlabel is proven wrong twice

In both rulings, Vlabel was proven wrong. In both cases, the court strictly applied the system of proof and rebuttal as was set forth by the Constitutional Court in its ruling of 30 October 2013. In the ruling of 5 May 2022, the court even went a step further and looked at the anti-abuse provision itself. A strict reading of the law reveals that the constitutive element of the anti-abuse provision has not been fulfilled.

If you have any questions about this, or if you would like advice about your particular situation, we will be happy to help you.