Weigh carefully the options in change of generation
Juridically taken the alternatives of change of generations are sale, donation and the intermediate form of these two, that is donation-natured sale. The most functioning solution might also be a combination of the above mentioned and other mergers and acquisitions such as division and purchase of own shares.
Tax issues form an essential part in planning of change of generation in business. Every single realization alternative and step of change of generation includes various kinds of tax sanctions. Revenue law includes several provisions which are supposed to remove taxation obstacles of M&A and ease the tax burden in change of generation. Revenue law also includes regulation concerning tax evasion, therefore every disposition shall be carefully planned with assistance of taxation expert. Before implementation of various arrangements it is worth to secure the tax issues by asking for advance ruling of the Central Tax Board.
The M&A provisions of Companies Act together the provisions of Business Tax Act make it possible to transfer the assets of a company to new companies without tax sanctions. In these cases the prerequisites for tax-exemption are, however, very strictly regulated.
Relating to company acquisition Income Tax Act includes a tax relief for profit on sale. However, the provision can only be applied under following prerequisites: The successor should get over 10 % of the shares and the successor must be child, grandchild, sibling or stepsibling of the renouncing person. In addition to that the renouncing party or person, from whom the renouncing party has gained the property gratuitous, must have owned the company at least for ten years before the transfer. In case the above mentioned preconditions will not be fulfilled, the renouncing party must pay tax for capital gain. In the year 2015 tax rate is 30 % if the profit is less than 30 000 € and 33 % of the exceeding part. The successor is liable to capital transfer tax.
Inheritance and Gift Duty Act includes a provision for tax relief in change of generation. According to it gift tax will not be levied, if the transfer of the company or a part of it is at least partially for compensation and the compensation is more than 50 % of the current price and the taxpayer continues the business. The scope of application is not limited to the kinship, thus the successor who gets tax relief can also come outside the family.
If one have chosen company acquisition as a form of change of generation, the unused right of loss deduction must be taken into consideration, because the deduction can easily be forfeited through poor planning of acquisition. The right of loss deduction will be forfeited if over a half of the shares of a company has changed hands through any other title than inheritance or legacy in the year the loss has arisen or thereafter. The provision offers, however, a possibility to apply for exceptional permission under special arguments. According to Government bill one of these special arguments is e.g. change of generation.
Our experts can find and customize the most appropriate solution for any situation to render successful business possible also after the change of generation.