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Tax treatment of liquidating distribution in the form of non-financial assets

Czech Republic: Is the liquidating distribution of real estate subject to real estate transfer tax?

From the legal point of view, liquidators face no problems in deciding to liquidate the excess balance from winding up a company in the form of a non-financial distribution. But things are not so easy from the fiscal point of view. The professional community is torn over whether the liquidating distribution of real estate should be subject to real estate transfer tax on the level of the shareholder who acquires the liquidation proceeds. According to the law, the subject matter of real estate transfer tax is the acquisition of real property for consideration; the debate is over whether the acquisition of liquidation proceeds qualifies as such an acquisition for consideration or not. By contrast to the case of contributions-in-kind to a company (where the contributing shareholder receives a counter-performance in the form of a share in the company), the company receives no counter-performance from the shareholder to whom the liquidation proceeds are paid out. Rather, the right to liquidation proceeds is a part to the shareholder's rights inherent in its title to (all or a part of) the company's shares.

In recent times, a coordinating committee of the Czech Chamber of Tax Advisors became involved in resolving the issue. (The Chamber uses these coordinating committees to try and attain mutual consensus with the Czech ministry of finance with respect to disputed or ambiguous issues). Unfortunately, no consensus could be reached with respect to this particular issue: contra the community of tax advisors, the ministry insists that the acquisition of surplus assets in liquidation in the form of real estate qualifies as the acquisition of real property for consideration and as such is subject to real estate transfer tax (whereas the taxpayer is in this case the acquirer, i.e., the shareholder). For this reason, the tax consequences of a liquidating distribution should always be carefully considered, especially if the "payout" consists of real estate.