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Written by:
Stan Evers


Subdivision of purchase price paid for business

The divestment of a business or of operating assets customarily involves the subdivision of the overall purchase price for the various components of the transaction (as per the sale and purchase agreement) being adhered to, unless it is plausible that the pre-agreed subdivision is not in keeping with the actual situation. Such discrepancies are not uncommon. Their purpose may be to enable the allocation where possible of the sales price to exempted components so as to reduce the vendor’s taxable earnings. The purchaser for its part may benefit from maximising the depreciation potential, which would also be an incentive for tweaking the subdivision.

The Tax and Customs Administration had challenged the subdivision of the purchase price as per the sales and purchase agreement for a farming business. The District Court dismissed the Tax Office’s subdivision as not fairly reflecting the actual situation. Substantially lower amounts, for example, had been assigned to the business structures forming part of the transaction than those shown in the valuation reports as per the Valuation of Immovable Property Act of the Netherlands. The purchase price for the dwelling (which had also formed part of the transaction), by contrast, had been significantly overstated in comparison with the appraised value. The purchaser and vendor had put a value of 40,000 euros on every hectare (1 hectare = 10,000 m2 ≈ 2.471 acres) whereas the Tax Office had taken the view that this should have been 33,855 euros per hectare.

As the Tax Office’s subdivision of the purchase price too failed to find favour with the District Court for reasons of “insufficient corroboration”, the Court itself in accordance with the proper administration of justice reallocated the overall purchase price to the business structures, the dwelling and the farmland. The Court’s adjustments ended up boosting the vendor’s profit.

Dutch version: Verdeling koopsom onderneming

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