The Corporate Income Tax Act (“CITA”) aim to transpose the rules for exit taxation, described in Art.5 of Council Directive 2016/1164 of the European Union (“ATAD”). Exit taxation applies when a legal person (company) transfers assets or activity or its tax headquarters outside or within another EU member-country.
The term ‘asset transfer’ indicates the act whereby which an EU member country loses the right to tax the transferred assets, even though these elements remain in the legal form or economic ownership of the company itself.
by Trust Economics-https://trusteconomics.eu
©The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer.
In practice this is done when the transferred assets stop being portrayed for accounting purposes in the member country where the legal person was originally established before the transfer.
Photo by the website www.crowleyrdfk.ie
These assets include all those assets over which the taxpayer exercises control and from which he expects future economic benefits. In addition, exit taxation also applies when the legal person:
1. Transfers its tax headquarters to another member-country or to a third country outside the EU.
2. Transfers its business through a permanent establishment (e.g., branch) in the country and at the same time acquires a taxable presence in another Member State or in a third country outside the EU, without becoming its tax office in that Member State or in the third country.
The relevant provisions ensure that any capital gains resulting from the transfer or exit are taxed domestically, even if that profit has not yet been made at the time of exit.
How exit tax is calculated
The Corporate Exit Tax is calculated at the applicable corporate tax rate in the tax year of the exit. The Exit tax is computed as if you sold all your assets on the day before you expatriated and had to report the capital gains. It is levied on the amount of market value of the assets transferred, less the value obtained for tax purposes at the time of exit.
Market Value is the amount against which a reciprocal obligation may be exchanged or settled between voluntary acts of unrelated legal persons in direct transaction.
Value for tax purposes is defined as the value of the asset as it arises based on the principles and rules of tax law at the time of expatriation.
The market value of the transferred assets shall be established in one of the following ways:
1. By drawing up a valuation report by two independent auditors or audit firm or, where appropriate, by two independent certified assessors.
2. Based on the value of the transferred assets, as shown for accounting purposes in the accounting records of the taxable legal person, where the measurement of such assets is carried out at fair value.
3. Based on the value of the transferred assets as determined for the purpose of documenting transactions taking part within the company group.
The tax shall be refunded to the tax office by a declaration submitted three working days before the transfer and paid in one-off or in equal annual instalments and as appropriate. The payment of the tax exhausts all tax liability from the income tax of the taxable legal person, its partners, shareholders, and members.
The Exceptions
The taxation of the Corporate Exit Tax shall not apply to the transfer of assets related to the financing of securities or assets transferred for the provision of security in rem or where the transfer of assets is carried out to cover prudential capital requirements or for liquidity management purposes, provided that the assets are to be returned to the country within a period of 12 months.
In this case, a zero declaration is submitted, but the tax administration may require the deposit equal to the amount of the letter of guarantee tax.
Our proposal is that there should be no corporate exit tax when a legal person transfers his assets or tax office from one member country to another EU member country. In this way, member countries will be forced to apply a common tax rate between them and to improve the other factors that define a business option for transferring assets and business activities such as labour costs, services provided, etc.
