Liability Of Tax Advisors And Shareholders For The Tax Debts Of A Shell Company: Selected Cases

 
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Originally published in Brussels To The Point e-Newsletter – June 2011

Liability is a hot issue in the field of taxation. Indeed, over the past few years, several new types of liability for company directors, shareholders and others have been created: (i) director's liability for the remittance of income tax on salary and VAT;1 the purchaser's liability for the seller's tax and social security debts in the event of an asset deal;2 and the principal's liability for a contractor's tax debts.3 In this article, we highlight shareholder liability for the tax debts of a shell company,4 introduced in 2006, and the potential liability of the company's lawyers and tax advisors in this regard. After describing the current statutory framework, we briefly turn to recent case law.

Shareholders of a shell company liable for its tax debts upon sale

Any person who directly or indirectly holds more than 33 percent (if need be, together with his or her spouse, business partners, parents, children or relatives to the second degree) of a Belgian shell company and sells at least 75 percent of his or her stake over a one-year period will be jointly and severally liable with the company for its tax debts.5

A shell company (also known as a cash company) is a company with least 75 percent liquid assets (i.e. receivables, fixed financial assets, investments and cash). Such companies are frequently established for tax purposes and are, in principle, a legitimate means of avoiding tax. However, if the buyer's or seller's sole intention is to strip the company of its assets and leave behind an empty shell, the construction will be deemed fraudulent.

The Belgian tax authorities have several effective weapons at their disposal to fight fraudulent tax shelters, including Section 442ter of the Belgian Income Tax Code (BITC). Section 442ter BITC provides for joint and several shareholder liability, meaning the total losses suffered by the state can be recovered from each qualifying shareholder. It should be noted that listed companies and other companies overseen by the Financial Services and Markets Authority (FSMA) cannot be considered shell companies. Further, only substantial shareholdings are targeted, namely 33 percent or more. The one-year period was included in the law to prevent the staggered sale of shares.

Section 442ter BITC applies more often than one might think (e.g. when the shares of a holding company are transferred). To prevent such claims by the tax...

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