Member Article

The Supreme Administrative Court stated in a final judgement on 16 June this year, that an allowable underprice sale is not at hand if the transfer price which is less than market value is matched by an input of labour. The case concerned a company’s application for an advance ruling on the issue of which tax consequences would follow from a assignment, made by the company, of the shares in its subsidiary for a price below market value to another company, which was partly owned by the natural person who was the MD of the subsidiary and whose shares were qualified. The Supreme Administrative Court deemed that sufficient information was lacking in order to determine the actual circumstances on which the transfer was based. Thus, it was not certain that a transfer below market value under chapter 23, section 3 of the income tax act was at hand. The advance ruling, in which it was stated that a transfer below market value was possible without tax consequences, was therefore annuled. One of the judges dissented on the grounds that this exact situation is regulated by chapter 23, section 11, first paragraph, second sentence of the income tax act, in which it is prescribed that taxation for benefit-in-kind will not be made since the acquirer’s shares are qualified. Therefore, taxation of earned income is only deferred to when dividend or capital gains are realised for the shareholder.

In another final judgement on 16 June this year from the Supreme Administrative Court, which has many similarities with the judgement above, an assignment of shares at a price below market value to a company owned by an employee in the transferred company was allowed. In this case it was established that chapter 23, section 11, first paragraph, second sentence of the income tax act is applicable in such a situation since the taxation is partly made in the tax schedule for earned income due to the fact that the shares are qualified. One difference between the two cases is that in the second case it is stated in the application for advance ruling that the salary paid was on market terms. In the application for the advance ruling which was annuled in the first case, it was stated that the restructuring would take place since it was deemed valuable for the business that the MD was indirect owner of the company in which he was active. Otherwise the conditions were the same.

Because of this case, it is possible that transfers at a price below market value between companies, in which employees own shares, can no longer be carried out without the employee being taxed for benefits-in-kind, on the grounds that a part of the transfer, in that it is a transfer below market value, may constitute remuneration for labour. After the Supreme Administrative Court’s statements it is uncertain in which cases chapter 23, section 11, first paragraph, second sentence of the income tax act is to apply without triggering taxation for benefits-in-kind.


For further questions please contact Delphi’s Tax department, phone: +46 8 677 54 00