Have a nice summer
Dear Readers,
We would like to wish you, as every year at this time, a peaceful summer and a nice holiday.
Many of us have been hectically finishing up our tax returns, whether corporate or personal, and sorting out the final touches before we leave. While we don't want to add any more complicated considerations to the list, we have a tireless legislator who refuses to rest over the summer.
On 28 June, the Government approved the consolidation package and sent it to the Chamber of Deputies. The desire to meet the budget is evident and most of the proposed changes are therefore political rather than technical. There is probably no point in contemplating whether a 2% increase in the tax rate is systemically and methodologically correct; we just need to collect more, so we raise the tax. And, probably understandably and rightly, there's not much discussion about it.
It is interesting to see, however, in a slightly exaggerated way, what resistance and pressures some of the other proposed changes have generated. The removal of the employee benefits exemption has undoubtedly garnered the most attention – or perhaps just the most publicity. The debate over whether ‘exempt and non-deductible (for employers)’ or ‘taxable and deductible’ has incited a great deal of passion. Whatever the outcome, it isn’t likely to have a material impact on the state budget in the end. But, the fight for workers' rights is clearly popular and certainly laudable. So let's see how it plays out.
The abolition of the exemption for the sale of securities has the opposite effect. It's not talked about much. It's probably not popular to oppose repeal. This is the umpteenth attempt to repeal or restrict the exemption. Previous attempts have not been very successful. This time the proposal is a little more elaborate. It repeals the exemption only for sales over 40 million. And it interestingly addresses potential retroactivity. On future sales of shares acquired before the proposed change in the law, I will be able to deduct the market value as of 31 December 2023. Simple, clear. The burden of proof is on the taxpayer to prove market value. i.e. when I sell in say 2028 I will prove what the market value was 5 years ago. If I start establishing that market value in 2028, my evidentiary position may not be the strongest. One may consider preparing a valuation for a possible future sale now in 2023. The evidentiary strength is probably generally better. Moreover, if the valuation is prepared by an expert with a round stamp, it will not be easily contradicted by a tax administrator. But what if the future shows that today's valuation assumptions deviate significantly from future realities and the price was more favourable to the taxpayer? Might someone think to throw the valuation in the trash and prepare a new one? But if it was made historically by an expert, it should be in the expert's journal, and therefore cannot be denied to exist, right? Can the tax administrator access it? So the consideration of whether to deal with the valuation now or in the future, and with or without an expert, is not entirely trivial – and different taxpayers may reach different conclusions in different situations.
I think that’s enough for now. More thoughts in September, after a well-deserved vacation.
Have a nice summer.
