Man who received business as a gift does not have to pay €4 mil. income tax on it: Court
A man who worked his way up to director at a family business over 20 years and then received that business as a gift does not have to pay a whopping €4 million in income tax on that gift, the District Court of Noord-Nederland ruled. The Tax Authority considered the company as part of the man’s wages and wanted to tax him on it. The court disagreed.
The man worked at the family business in the north of the Netherlands since 2000, with a brief interruption, eventually climbing to the position of director. In the summer of 2022, the owner of the family business decided to gift the company to the man.
The owner was ready to step down and saw the director as the most suitable person to continue and preserve the over 100-year-old company on the same footing. He wanted to prevent the business from “falling prey to larger players in the market, who, he firmly believed, would cherry-pick the profitable activities and let the remainder bleed to death.”
To avoid burdening the company and its new owner with millions in debt to finance a takeover, the former owner decided to donate the company to his trusted employee, on the condition that the man would eventually donate the company to his successor.
In 2024, the new company owner opened his blue envelope from the Tax Authority and, to his astonishment, saw that he had to pay a whopping €4 million in income tax. The Tax Authority considered the gift of the company as part of the man’s wages. So instead of paying income tax on an annual salary of €234,000 for 2022, he had to pay tax on over €8 million.
The man objected to the Tax Authority’s decision, but his protest was dismissed. So he took the matter to court. And the court has now ruled in his favor.
According to the court, the gift came not from the company (the man’s employer), but from its owner (not the man’s employer). It should therefore not be considered salary and cannot be taxed as such, the court explained.
The condition that the director eventually donate the company to his successor also played in his favor. “In fact, the plaintiff did not receive the shares freely, but only full control plus the rights to profits (dividends) as long as he remains a director,” the court said.
The court ordered the Tax Authority to tax the man on his salary of €234,000 for 2022. The tax office also has to reimburse the man for his court fees and the standard fee for legal assistance.
