In our newsflash of 14 April 2016, we announced that the Flemish Tax Administration has expanded its position on split purchases on 21 March 2016 (with publication on 4 April 2016).
Standpoint concerning split purchases
The position concerning split purchase relates to the following situation:
- First, a gift of funds takes place;
- Second, the beneficiaries of the donation make a split purchase together with the donors. The donors buy the usufruct, and the beneficiaries buy the bare ownership.
The Flemish Tax Administration states that, in such a case, the assets purchased in this way are deemed to be part of the donor’s estate in full ownership. Inheritance tax will be due on the value of the full ownership of the assets so purchased.
No inheritance tax, however, is payable if the following evidence is provided:
- The funds of the donation were not earmarked for the purchase of the bare ownership. The donation was not made to finance the purchase of the bare ownership; OR
- The donation was subject to gift tax before the purchase.
Expansion to split registration
The Flemish Tax Administration added a clause to its position on split purchase on 21 March 2016 which states that the above also applies to split registration of securities and investments.
Application to a donation with reservation of usufruct?
In response to the expansion of the standpoint, it has been announced in the press that all donations of securities and investments with reservation of usufruct would be subject to inheritance tax in the donors estate if no gift tax has been paid.
Too large, illegitimate interpretation
This interpretation concerns, in our view, an overly extended reading of the expanded position of the Flemish Tax Administration concerning split purchase. Such an interpretation has, in our view, no legal basis.
Clarification of the date of commencement
The Flemish Tax Administration has clarified, on 25 April 2016, that the expansion of its position on split purchases to the split registration of securities and investments will apply to split registrations as from 1 June 2016.
No implication on split registrations before 1 June 2016
The expanded standpoint of the Flemish Tax Administration will not apply to split registrations of securities and investments before 1 June 2016.
Donations of securities and investments with reservation of usufruct leading to a split registration of securities and investments before 1 June 2016, cannot give rise to discussion with the Flemish Tax Administration (even if the Flemish Tax Administration were to utilise the expanded standpoint on donations with reservation of usufruct).
Split registrations as from 1 June 2016
Split registrations of securities and investments as from 1 June 2016 will be targeted by the expanded position of the Flemish Tax Administration.
It is uncertain whether the Flemish Tax Administration will consider itself competent to levy inheritance tax upon the decease of the donor on the untaxed donations of securities and investments with reservation of usufruct leading to a split registration formalised as from 1 June 2016.
In our view, the Flemish Tax Administration does not have this power in accordance to the law.
In any case, it should be noted that inheritance tax can never apply on donations of securities and investments with reservation of usufruct that were subject to gift tax (3% or 7%).