The repurchase of own shares: the administration revises its disputed position

The Court of Appeal of Liège will have been proved right by the administrative position regarding the repurchase of own shares (Liège, April 27th 2016, T.B. n°2010/RG/1070).

It is indeed that arrest that has justified the publication of a new administrative circular (2017/C/12 of March 15th 2017) with which the administration has revised its former position on which tax regime to apply on operations involving the repurchase of own shares or own corporate units.

The former position, which was strongly criticised in the doctrine, was that the revenue that was realised by a ceding company within the context of a repurchase of its own shares or corporate units by another company automatically had to be considered as a dividend “received”, even if the receiving company was not supposed to have distributed such dividend.

So that dividend received could possible enjoy the RDT regime if in that case all its applicable conditions were fulfilled. This resulted necessarily in an additional corporate tax as the RDT are only deductible for 95%.

This interpretation combined in no way whatsoever with the concerned laws.

Indeed, article 202CIR – source of the RDT regime – states that the dividends received that are qualified as those qualified in the sense of article 186CIR can be deducted from a company’s taxable base, provided that the mentioned conditions are respected.

for the company that acquires its own shares this provisions describes “the positive difference between the acquisition price or, failing that, the value of those shares or corporate units, and the part of the revaluated value of the paid-up capital that is represented by these shares or corporate units” as distributed dividend.

This means that, if a company acquires shares at a price that is higher than their value which can be determined in accounting terms, the acquisition surplus established as such must be considered as a distributed dividend.

However, section 2 of that same provision causes an important moderation: in case the acquisition happens under the conditions provided in the Company Code, a dividend can only be established at the time we really notice a reduction of the equity capital of the receiving company in the accounts, in other words:

– either at the time the depreciations on the received shares or corporate units are recorded
– either at the time the shares or corporate units are sold
– either at the time the shares or corporate units are legally destroyed or declared null,
– or, finally, at the company’s dissolution

So in case none of these situations occurs during the taxable period, under no circumstances the yield resulting from the transfer can be qualified as dividend in the sense of article 186CIR.

Seen the fact that the added value which is realised by the ceding company can not be qualified as dividend in the sense of that provision, article 202CIR is, de facto, not applicable.

This is the assertion that the Court of Appeal of Liège has applied in its arrest mentioned beforehand.

According to the Court, “the CIR92 treats the acquisition of own shares as a partial liquidation of the company, but only and to that extent that it results in a reduction of the company’s equity capital and that the gains made on purchases are only considered as distributed dividend at the time the acquisition of own shares leads to a withdrawal from the company’s equity capital”

The Court therefore comes to the conclusion that, when one of these four situations does not occur during the taxable period, the gains made on the purchases should not be considered as dividend. Therefore the operation must be considered as a simple transfer of shares of which the surplus is in principle exempt based on article 192, §1st of the CIR92.

These are the lessons to which attention is paid in the new administrative circular:

“ (…) in case none of the four situations as referred to in article 186, al 2, CIR92, has occurred during the financial year, the income the ceding company has gained will be considered as a surplus realised on the shares or corporate units”.

We can only welcome this administrative reversal, providing the only position compatible with the legal texts.