4 Business transfer facilities IB-claim

The facilities may be differentiated in roll-over reliefs and payment arrangements. When a roll-over relief is applied the tax claim accrued in the unincorporated business or substantial interest will be transferred from the transferor to the continuer. When an appeal is made on the payment arrangements, the tax payer will get a deferred payment during a certain period, with or without interest, from the resulting tax claim coming from the business transfer. The tax claim will remain at the transferor. For the question whether roll-over reliefs are legitimate, the transferor as well as the continuer will need to be analyzed. As for the transferor a roll-over relief is only legitimate when there are no sources from the acquisition from which taxes can be satisfied. This applies first of all at death when the estate has insufficient resources to satisfy the taxation. Also in case of a gift no resources from the acquisition will become available. I do not support facilities for gifts because the transferor makes his own choice to donate. Government intervention is according to my opinion not necessary in this case. From neutrality point of view a roll-over relief may be considered necessary, due to the fact that the transferor could wait with the transfer until the moment when a facility could be applied. The last case with no release of sources to satisfy the taxes is when the transfer takes place at acknowledgement of debt. The transferor could then renounce the business transfer, as he is not able to pay the taxes. Government intervention is also legitimate when the tax legislation itself gives reason to intervene. For entrepreneurs this takes place when the marriage is dissolved (other than the death of the entrepreneur). If the unincorporated business belongs to the marriage, the entrepreneur runs the company for tax purposes fully for his own account. However, at the dissolution of the marriage, the part of the nonentrepreneurial spouse has to be settled. I agree with the legislator that a rollover relief may not fail in this situation. On the other hand I consider a roll-over relief not legitimate if the share of the non-entrepreneurial spouse is transferred to another person than the entrepreneurial spouse. The tax legislation however also gives reason for holders of substantial interests to intervene. For holders of substantial interests it applies that a fictitious alienation is adopted, while the position of the spouse who has power of disposition does not change. This happens at the time of the marriage, as well as at the time of divorce (when alive, or death). A roll-over relief is then considered legitimate by me.

Roll-over reliefs are not contrary to the principle of equality. Taxpayers who do run a business and those who do not, are not to be considered equal. There is no disproportionate unfair treatment of unequal cases. Entrepreneurs and holders of a substantial interest are according to my opinion equal. There is however an objective and reasonable justification in case of unequal treatment. Roll-over reliefs are however contrary to the ability-to-pay principle. These facilities cannot be in accordance with the principles of a subject bounded taxation.

Holders of a substantial interest may only apply a roll-over relief as far as the value of the shares is related to the entrepreneurial capital. This condition I consider effective. It should be possible for parties to make cash of their investment assets. The restrictions relative to the type of a substantial interest of the transferor could expire. There should however be requirements for the continuer. The legislator aims to grant facilities only in case of business transfers. It is therefore in my opinion not more than reasonable to desire that the continuer will be involved in the business in a certain way. The disadvantage of roll-over reliefs is that these may be used in cases where the transferor does have the resources to pay the taxation. This detracts from the efficiency of roll-over reliefs. Furthermore the discrepancy in conditions of the various roll-over reliefs make the tax law complex, which has a negative consequence for efficiency.

From the side of the continuer roll-over reliefs can be legitimate in case he is faced with problems to finance the acquisition price. The importance of rollover reliefs is in this case of little importance. The advantage for the continuer is then only that the acquisition price as a result of application of a roll-over relief is lowered because the deferred tax claim will be included in the acquisition price. At death Government intervention is only justified in case the continuer has an indebtedness to the other heirs, which is immediately due.

Payment arrangements are from the perspective of legitimacy preferable to roll-over reliefs. It concerns indeed facilities, which offer deferred payment when no resources result from the transfer. I reject payment reliefs, which refer to an arising tax claim from a gift. This is based on the same principles, which I brought forward with regard to roll-over reliefs. The choice of the Government to make certain payment arrangements interest-free, I consider Government interference. To make a payment arrangement interest-free cannot be traced back to a deficient operating capital market. In order to correct a deficient operating capital market, it is not necessary to make a facility interest-free. In addition, no interest obligation makes the taxation degressive, which decreases the effective taxation. Another disadvantage of the interest-free character is furthermore that it has a force of attraction. If a facility would be interest bearing, the taxpayer would perhaps not even make use of it. This creates a distortion. Additionally, the review of other criteria leads to the conclusion that payment arrangements are acceptable, despite the fact that certain elements in the facilities need adjustments.