There are two ways to sell one building. Sell the building, and the buyer receives an asset, a fresh book value and a transfer tax bill. Sell the company that owns it, and the buyer receives an entity with everything inside it, including a book value and a tax history it did not create.
The second route is still described, in conversations that start too late, as the way to avoid Dutch transfer tax. It has not been that since the Wet op belastingen van rechtsverkeer was enacted on 24 December 1970 and took effect on 1 January 1972, with an article written for the point. The share deal remains a real and often correct answer. It is not an answer to the transfer tax question, and the two get confused often enough to cost money.
The two ways to sell one building
An asset deal is an acquisition of Dutch immovable property under article 2 of the Wet op belastingen van rechtsverkeer. Transfer tax follows at 10.4 per cent under article 14, first paragraph, on a base that is the value of the property under article 9 and at least the consideration, value meaning value in economic traffic under article 52. The buyer capitalizes what it paid; the seller realizes a taxable gain.
A share deal moves the shares and leaves the property where it is. The buyer takes the company as it stands: historical cost, accumulated depreciation, the deferred tax on the difference, the leases, the disputes and the earlier tax years.
The choice cannot be split down the middle. Article 2, second paragraph, treats the acquisition of economic ownership as an acquisition in its own right, economic ownership being a set of rights and obligations representing an interest that carries at least some risk of value change. Moving the economics while leaving the deed alone is taxable.
Article 4, and the two tests that turn shares into property
Article 4 designates certain shares as fictitious immovable property. Two conditions apply together. The possession test asks whether the assets of the entity, at the time of the acquisition or at any time in the preceding year, consist or have consisted mainly of immovable property, and at the same time whether at least 30 per cent of the assets consist or have consisted of immovable property situated in the Netherlands. The purpose test asks whether that property, taken as a whole, is or was wholly or mainly serving the acquisition, disposal or exploitation of the property itself.
The lookback to the preceding year is the part that surprises people. An entity that sells assets or takes in cash shortly before the share transfer does not escape the test, because the statute measures the position at any moment in the twelve months before. Cleaning the balance sheet before completion achieves nothing.
The purpose test separates a property vehicle from an operating company that happens to own its premises. A manufacturer whose factory stands on its own land is not caught. A landlord is. The second paragraph adds that fictitious immovable property, rights to which property is subject and the economic ownership of either all count as immovable property here, so intermediate layers do not filter the result.
The interest that triggers the charge, and who counts with you
Meeting the two tests is not enough. Under the third paragraph, tax is charged only where the acquirer, counting shares already held and shares still to be acquired under the same or a connected agreement, reaches a threshold. An individual needs at least a one third interest together with a spouse, relatives in the direct line and in the second degree of the collateral line or a connected body, and more than 7 per cent alone or with a spouse. A legal person needs at least one third, alone or with a connected body or individual.
The fourth paragraph then reaches through. Where the entity holds at least a one third interest in another body, the assets and debts of that body are attributed proportionally when the possession test is applied. The same paragraph disregards receivables against the acquirer and its connected parties, unless shown to arise from normal business activity, and disregards non-property assets treated as financed by debts owed to them. Diluting the property ratio with intragroup cash and loan notes does not work, and the statute says so.
The fifth paragraph adds the timing rule. Acquisitions within two years by the same acquirer, and by bodies of the same concern, count as made under one connected agreement. A staged purchase reaching one third over three closings inside two years is a single acquisition.
What the tax is charged on when it does arise
The most expensive misunderstanding concerns the base. Article 10 provides that the value of article 4 shares equals the value of the property they represent, directly or indirectly. It is not the price paid for the shares and not the equity value. Debt inside the company does not reduce it.
A building worth ten million held in a company with eight million of debt has an equity value of two million. The transfer tax base on a share deal is the ten million, apportioned to the interest acquired. Buyers who model the charge against the share price find the assessment several times what they provided.
The rate follows the underlying asset: 10.4 per cent under article 14, first paragraph, and 8 per cent under the second paragraph to the extent the shares relate to a dwelling. The 2 per cent own residence rate is unavailable for article 4 shares under the sixth paragraph, and article 15, eighth paragraph, removes the first time buyer exemption as well. Article 13 relieves a resale within six months of a previous acquisition of the same goods, and its second paragraph treats the shares and the property they represent as the same goods.
The seller’s position, and the discount the buyer will ask for
On the seller’s side the share deal usually looks better. Where the shareholding is a participation, which under article 13, second paragraph, of the Wet op de vennootschapsbelasting 1969 requires at least 5 per cent of the nominal paid-up capital, the gain on disposal falls under the participation exemption and is left out of account in determining the profit. An asset sale produces a taxable gain at the property company level and then a further step to move the cash upward.
The buyer prices that. The company arrives with the seller’s book value, so there is no step-up to depreciate against and a deferred liability sits on the difference. The negotiation is about what that liability is worth today, and the answer is usually less than the headline rate applied to the latent gain, because the buyer may hold for a long time and because article 3.30a of the Wet inkomstenbelasting 2001, applied to companies through article 8 of the Wet op de vennootschapsbelasting 1969, caps depreciation at the excess of book value over the WOZ value in any event.
The buyer also inherits exposure. Article 16 of the Algemene wet inzake rijksbelastingen allows an additional assessment within five years of the tax debt arising, and within twelve years where the item was held or arose abroad. Warranties allocate that risk. They do not remove it from the company.
New buildings, and the exemption that was narrowed
Where the property is new, a second regime is in play. Article 15, first paragraph, letter a, exempts an acquisition from transfer tax where the supply is subject to VAT, and the sixth paragraph extends that to certain acquisitions within six months of first occupation or of an earlier commencement of letting. For an asset deal in new-build this removes the transfer tax and leaves VAT, recoverable where the acquirer will use the property for taxed activity.
That relief no longer follows automatically into a share deal. Under the eleventh paragraph the exemption is set aside on an acquisition of article 4 shares where not applying it results in indirect taxation of the value of the property for VAT purposes, and to the extent the property is used, for at least two years after acquisition, for activities carrying less than an almost full right of input deduction. Where it is set aside, article 14, eighth paragraph, imposes 4 per cent rather than 10.4 or 8.
The division is clear enough. New-build acquired through a company for VAT taxed use, such as offices let under the option or logistics space, still reaches the exemption. New-build for exempt use, which covers residential letting and much healthcare occupation, bears 4 per cent. The two year test means the position is not fixed at completion, and a change of tenant profile inside it has consequences.
Restructuring before the sale, and the three year memory
Groups regularly prepare for a share deal by moving the asset into a clean company first. That transfer is itself an acquisition, and the relief normally invoked is the internal reorganization exemption in article 15, first paragraph, letter h, worked out in article 5b of the Uitvoeringsbesluit belastingen van rechtsverkeer.
The relief has a memory. The tax not levied becomes payable after all if, within three years of the reorganization, the required whole or almost whole interest in the acquiring company is no longer held. Dropping a building into a new entity and selling that entity eighteen months later is the case the provision describes. The reorganization was valid, the exemption applied, and the charge comes back.
Legal mergers carry a parallel rule in article 5bis, which withdraws the merger relief where a shareholder holding at least a one third interest in an entity qualifying under article 4 disposes of the replacement interest within three years. Three years counted forward from the restructuring is a date for the file.
Where the boundary actually runs
Article 4 is itself the anti-abuse provision, and it is mechanical. It works on percentages, categories of asset and dates, and contains no motive test. That cuts both ways. A reorganization undertaken for reasons unconnected with tax crosses it exactly as a sale does, and a share deal outside its tests is not vulnerable simply because it is efficient.
Beyond the statute sits the general doctrine of fraus legis, which requires both that avoidance was the decisive motive and that the result conflicts with the object and purpose of the law. Choosing a form the statute expressly contemplates does not meet that description. What does attract it is a sequence of steps with no independent meaning: an interest diluted below a threshold and restored afterwards, a party interposed without an interest of its own, a holding period observed on paper while the economics have already moved.
The working conclusion is unglamorous. A share deal is the right structure when the reasons are commercial: the buyer wants the leases, the permits and the continuity, or the seller cannot extract the asset without realizing a gain it has no need to realize. Where the only reason offered is the transfer tax, the analysis has not been done, because that reason has been unavailable here for more than fifty years.
This article is informational and does not constitute tax, legal or investment advice. Each engagement is subject to scope and applicable regulation.