The free provision of a (holiday) home or a flat by a company to its manager is and remains an interesting tax optimisation technique. However, it is viewed with suspicion by the tax authorities.
The discussion always revolves around the question whether the costs relating to such home supported by the company can be considered as tax-deductible business expenses.
1. What is it about?
In order to prove that the costs relating to the company's home can be regarded as a tax-deductible professional expense, the company must demonstrate in particular that the costs were incurred or borne in order to obtain or retain taxable income (the so-called finality condition).
Broadly speaking, two arguments are used in this respect : on the one hand, the remuneration theory and, on the other hand, the capital gains theory (in particular for real estate acquired in full ownership by the company).
Both arguments have since been subject of a multitude of case law, in which the deductibility of such costs is sometimes accepted and sometimes rejected.
A careful analysis of this case law shows that while both the remuneration theory and the capital gains theory do stand in principle, the taxpayer often fails to substantiate these theories in fact. In other words, the mere assertion that a property is made available (whether for free or not) by way of remuneration of the company manager or that it was purchased with a view to a potential long-term capital gain is not sufficient.
2. The added-value theory
In the case of the added-value theory, it will have to be demonstrated concretely that the company had the intention of realising a capital gain on the property at the time of purchase.
This intention is best recorded within the company at the time of purchase. If this was not done, this intention can equally be proven on the basis of presumption.
For example, the intention could be inferred from the fact that there is an investment in full ownership rather than mere usufruct. If the company has made similar investments in the past on which a capital gain was effectively realised, it will also be possible to argue that the new investment was made with the same intention. The Court of Appeal of Ghent recently confirmed the deductibility of the costs relating to a well-defined real estate property after the company had demonstrated, based on a set of factual elements, that it has an actual and regular business activity of buying and selling real estate.
3. The remuneration theory
In the case of the remuneration theory, it must be demonstrated that the benefit granted (consisting of the provision of the property) is part of the company's remuneration policy and corresponds to actual performance by the manager. In the absence of such evidence, there will be a (non-deductible) liberality on the part of the company.
Recent case law shows that the following elements may be decisive :
- the manager performs services for the company which result in a constant and substantial flow of income for the company;
- for those services, the manager receives, in addition to the payment in kind consisting in making the accommodation available free of charge, a pecuniary payment and a number of other payments in kind;
- the remuneration in kind is recorded in the minutes of and approved by the General Meeting as part of the manager's remuneration package;
- the remuneration in kind is mentioned on the individual sheet no. 281.20 drawn up in the name of the manager, who is taxed on it for personal income tax purposes;
- the remuneration in kind is reflected in the annual accounts (entry in the profit and loss account).
4. Carefully documenting your remuneration policy is and remains the message
A lot of companies only started documenting their remuneration policy after learning about this recent case law.
The fact that this was not yet done at the time of the purchase of the property does not prevent such evidence from being provided for later assessment years.
As a result, it is perfectly possible that the deductibility of the costs for financial year x will be finally rejected in the absence of a substantiated remuneration policy, while the deductibility of these costs for financial year x + 1 will be accepted if the company has since documented its remuneration policy in accordance with recent case law. This is where the remuneration theory differs fundamentally from the capital gains theory.
Thus, the importance of a carefully documented remuneration policy cannot be underestimated. Even companies that have paid insufficient attention to this in the past are warned to remedy this : better late than never!
