Reinvesting in shares: exceptionally possible

August 2021 – If, as an entrepreneur (natural person or company), you realise capital gains on professional assets, these capital gains are generally taxable as professional income. But exemptions are possible, for example, if you reinvest the capital gain in other assets. Shares are not eligible for reinvestment... or are they?

Professional capital gains

The legal basis for the tax exemption of professional capital gains is found in article 47 of the CIR 92. This is not in fact a real tax exemption. Rather, it is a deferred tax. Article 47 of the CIR 92 stipulates that the capital gain must be reinvested in 'depreciable tangible or intangible assets'. The capital gain becomes taxable as and when these new assets are depreciated.

In this system, financial assets, such as shares, are not "eligible" assets. They are not depreciable. In a recent ruling (ruling no. 2020.2219, 26 January 2021), the Commission has, however, considered that a re-investment in shares is still eligible.

A Kommanditgesellschaft

In this case, the taxpayer purchased all the shares of a Kommanditgesellschaft (KG). This is a German legal form. It is a company, but for tax purposes it is "transparent", which means that one has to look through the company for tax purposes: the profits of this KG are taxed directly in the hands of the partners, regardless of whether there is a distribution or not.

A special feature of this case is that the Belgian company (which had to make a reinvestment) bought all the shares in this KG on the same day. As a result, the KG was dissolved by operation of law. In reality, the Belgian company did not buy the shares, but the underlying tangible and intangible assets of the KG.  The Belgian company also entered them directly in its own accounts. The Ruling Commission therefore indirectly accepted the purchase of shares as a valid replacement.

A Belgian scenario?

In Belgium we also have a legal form which, like the KG, is fiscally transparent, namely the simple company. According to the Commission for Accounting Standards (CNC), a company that holds a participation in a simple partnership does not have to mention this participation in its own accounts, but rather its share of the movable and immovable assets.

According to some, there is therefore sufficient reason to assume that a re-investment in shares in a simple company is also considered a valid re-investment for the application of Article 47 of the CIR 92.

But it is probably safer to ask the Ruling Commission for its prior opinion on this matter.

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