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Are in-kind contributions subject to Civil Transaction Tax (CTT)? |
Pursuant to various provisions of the CTT Act, contributions to a
company which give rise to an increase in its equity or an increase in
its share capital are subject to CTT. By contrast with the legal regime
prevailing until the end of 2006, now there is no longer any doubt as
to the treatment for CTT of an in-kind contribution by a VAT payer of
goods as defined by the VAT Act.
Pursuant to art. 2 pt 4 of the CTT Act, if any of the parties to a
civil transaction is taxable or exempt from VAT by virtue of the
transaction, the transaction is not liable to CTT. With effect from 1
January 2007 this regulation, however, no longer applies to an increase of equity or share capital. Therefore, irrespective of whether
an in-kind contribution of goods is made by a VAT payer, and is thus
exempt from VAT (in-kind contributions are exempt from VAT), now each
in-kind contribution of goods increasing the company’s equity or share
capital made by a VAT payer is subject to CTT.
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Under the legal regime prevailing until the end of 2006, there were
significant uncertainties regarding the liability to CTT of in-kind
contributions of goods by VAT payers. In our opinion, although the tax
authorities generally adopted the opposite position, there were legal
grounds for claiming that such contributions should not be subject to
CTT, particularly if made to partnerships.
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