What the law states: a refutable presumption
One of the conditions for a family-owned company enjoying a favourable inheritance and gift tax rate is that the company must perform an actual economic activity.
The law includes a presumption that no actual economic activity exists when two conditions in the annual financial statements are both met: the lands and buildings, listed under item 22 of the balance sheet, amount to more than 50 percent of the assets, and the salaries, social security charges and pensions, listed under balance sheet item 62, do not amount to more than 1.5 percent of the total assets.
However, the law allows this presumption to be refuted by evidence to the contrary, which means that the taxpayer must be able to demonstrate that the company in question does in fact have an actual economic activity.
Vlabel says: counter-evidence doesn't count
But in Circular 2015/2 the Flemish tax authorities assert they will not accept counter-evidence if private property is held by the company. Vlabel says that it was never the intention of the law that such property fell under the favourable tax rate.
The court says: counter-evidence does count
In an actual case that dealt with this issue, the court examined whether the rigid approach of the tax authorities was backed up by the law, and on 4 February 2020 the Ghent court found that this was not the case. The Circular in question was set aside and counter-evidence was accepted.
In this dispute the company did indeed own an apartment and residential house, aside from fields, warehouses and a shop. It was put to the court that Vlabel's opinion is contrary to the clear wording of the law, which in any event allows for counter-evidence to be presented.
The court of first instance agreed with this argument and found that the taxpayer only has to provide evidence of an actual economic activity, even if the company also has (private) immoveable property. Given that, in the case in question, the company operates a butchery, the court deemed that counter-evidence had been provided.
We will now have to wait and see what the response of the Flemish tax authorities is to this ruling.