As of 1 October 2014, the withholding tax rate on liquidation boni will increase from 10% to 25%. The law clearly indicates 1 October 2014 as the breaking point. Distributions of liquidation boni performed up until 30 September 2014 are still subject to the 10% rate; distributions made later will be subject to the 25% rate.
Can a liquidator, noticing that the liquidation will not be closed prior to 1 October 2014, mitigate the tax burden for the individual shareholders by making advance payments prior to 1 October 2014?
Pursuant to the Income Tax Code, withholding tax is triggered at the moment of "attribution or payment" of the liquidation boni. A "distribution or payment" is to be construed as occurring when the income is effectively at the disposal of the shareholders or when they can obtain payment of the income. If this occurs prior to 1 October 2014, the liquidation boni will still be subject to the advantageous 10% tax rate.
There are dissenting opinions on the question whether or not an advance payment on the final distribution entails such an "attribution or payment", hence triggering the withholding tax.
Some scholars are of the opinion that the words "attribution or payment" are to be construed as relating to the point in time at which the advance payment can be deemed to be final. This means that the advance payment can only be deemed to be "attributed or paid" – and thus final – upon closure of the liquidation. Consequently, an advance payment would not entail an "attribution or payment" triggering withholding tax. Based on this reasoning, one cannot exclude the risk that the tax authorities would consider that an advance payment is subject to the 25% rate when the advance payment is performed prior to 1 October 2014 but the closure of the liquidation occurs later. Other scholars argue that an advance payment qualifies as an "attribution or payment", triggering withholding tax at the moment it is made.
In our opinion, one should be particularly diligent with regard to the actual nature of the "attributions". During the liquidation process the liquidator can decide, under personal liability, to make final distributions to the shareholders when he deems that there will be a liquidation surplus allowing him to proceed with this. In such a case, income would be attributed to the shareholder – a liquidation bonus, which triggers the withholding tax at the rate applicable on the date of attribution or payment. When the liquidator and the shareholders agree – e.g. because they still want to benefit from the lower 10% tax rate, but without putting the liability of the liquidator at risk – to pay an amount of money within the framework of the liquidation to the shareholders subject to the condition that the latter will pay the money back (e.g. through netting of the debts upon the final distribution), the attribution or payment of a sum of money will occur, but not the attribution or payment of income. From a legal viewpoint, the correct characterisation of such an operation is, rather, a loan not yet triggering the withholding tax.
In the light of this controversy, it is important either to ensure that the closure of the liquidation takes places prior to 1 October 2014 or that the distributed amount can be deemed "attributed or paid", in other words as a distribution of liquidation boni prior to 1 October 2014 (which is a factual assessment). It should be noted that, when the liquidator requests a warranty for any shortfall, alternatives are available other than an agreement with the shareholder which could be recharacterised as a loan.