In a recent verdict, the Supreme Administrative Court (SAC) defended a company that has been additionally assessed withholding tax by the tax office, due to abuse of law during corporate restructuring. In this particular case, a holding structure was created, with the existing partners selling their own shares to the newly created parent company. The owners argued that the reason for the creation of the holding company was primarily the restructuring of the business shares and the exit of one of the partners from the subsidiaries. Another reason was the equalization of business shares and creation of conditions for the accession of a new partner. In addition, the holding was to be instrumental to future acquisitions. At the same time, however, there was also a tax saving, as the transaction made it possible to settle the departing partner without paying the profit shares, which are taxed with withholding tax.

The Tax Office and the Regional Court considered the actions of the complainant to be purposeful, with the aim of avoiding taxation. They argued that the establishment of the holding company lacked economic rationality and that the goals could have been achieved without it, too. They claimed that the retained profit was used to pay a share of the profits of the holding company and, subsequently, to pay the purchase price of the business shares, thereby avoiding taxation. The tax administration called it an abuse of law.

The SAC confirmed the arguments of the founders of the holding company, stating that it is necessary to assess each case individually and comprehensively, while the establishment and existence of the holding in itself cannot be automatically assessed as a purposeful behavior. The SAC deduced that the tax authorities and the Regional Court insufficiently assessed the economic and legal reasons for the establishment of the holding and did not have sufficient reasons to classify the transaction as an abuse of law.

Even this positive verdict confirms that the prospective establishment of a holding structure must be thought through in all contexts and its parameters are to be consulted with an expert.