CJEU: no transfer tax on a restructuring involving property companies

In the Nova Ibermoldes case, the Court of Justice of the EU ruled that Portugal may not levy transfer tax on a restructuring in which a public limited company is incorporated and its shares are paid up by contributing shares in a property company. The ruling may also affect the restructuring of Dutch groups holding property companies.

The long arm of Europe

Transfer tax has not been harmonised within the EU. The Nova Ibermoldes case nevertheless shows how far the arm of Europe reaches. In this case the Court of Justice of the EU held that the Portuguese transfer tax was contrary to the Capital Duty Directive. That directive aims to remove tax obstacles to the raising of capital. Under the directive it is not permitted, specific exceptions aside, to levy an indirect tax on contributions of capital to capital companies such as private and public limited companies, or on restructurings involving capital companies.

Nova Ibermoldes

Nova Ibermoldes concerns a Portuguese public limited company incorporated as part of a restructuring. Its share capital was paid up by contributing shares in a property company. Under Portuguese law, transfer tax is due on that contribution in kind. In the view of the Court of Justice of the EU, that charge is contrary to the Capital Duty Directive.

Why this matters in practice

In the Netherlands, acquiring a qualifying interest in a property-holding legal entity is a taxable event for transfer tax purposes. Where a qualifying interest in such an entity is acquired as part of a restructuring, the acquirer of the shares is in principle liable for transfer tax on the value of the underlying property.

For acquisitions on a merger, demerger or internal reorganisation the law provides relief in the form of an exemption. Because that merger, demerger and internal reorganisation relief is subject to strict conditions, Dutch transfer tax may still be levied or assessed after the event where the Capital Duty Directive does not allow it. In those situations the long arm of Europe can produce a transfer tax saving.

Would you like to know whether you can save transfer tax by relying on the Capital Duty Directive? We are happy to review your restructuring.