When a substantial interest holder emigrates, the tax authorities impose a protective assessment on the value of the substantial interest at the time of departure. This assessment secures the tax claim without making it immediately recoverable. When emigrating outside the EU, the Tax Authorities require security to guarantee the deferral of collection. This provides a guarantee that sufficient funds are available to still collect the tax. In this article, we discuss the forms of security that the Tax Authorities usually accept and what this means concretely for taxpayers emigrating outside the EU.
Legal context and case law within the EU
Within the European Union, the requirement of certainty in respect of preservation assessments has come under pressure due to case law of the European Court of Justice (ECJ EU). On 7 September 2006, the Court ruled in case C-470/04 (N), in which it ruled that the Dutch exit tax on emigration of a substantial interest holder constitutes an obstacle to EU law, specifically the right to freedom of establishment. This ruling resulted in the Tax Administration waiving the obligation to provide security for emigration within the EU and automatically granting deferral of payment. However, for emigration outside the EU, the obligation to provide security continues to apply.
Forms of security for emigration outside the EU
The Tax Authorities prefer collateral that is easy to establish, monitor and – if necessary – extract. This prevents fluctuations in value and ensures stability in securing the tax claim. Below are the accepted securities:
- Bank guarantee: A bank guarantee is a commonly used form of security. In it, a bank guarantees payment of tax if the taxpayer fails to meet its obligations. This form provides stable cover to the tax authorities and is relatively easy to set up and extract.
- Mortgage on property: A mortgage on a home or business premises can serve as security. This gives the Tax Administration the right, if necessary, to sell the property to satisfy the tax claim.
- Pledge of full-fledged receivables: A full-fledged receivable can be pledged if it has a stable and liquid value. This provides the Tax Administration with relatively fixed coverage and limits risks of fluctuations in value.
Collateral forms that are less commonly accepted
The Tax Administration does not accept all forms of collateral, especially when the value may fluctuate significantly or is difficult to secure. For emigrants outside the EU, it is relevant to be aware of collateral that is usually less commonly accepted:
- Shares and stock pledges: Shares and stocks can fluctuate significantly in value, making these forms less suitable as security for a long-term tax claim. The pledge of stocks without possession (possessionless pledge) is often not accepted for this reason.
- Positive or negative mortgage declaration: In many cases, the Tax Authorities do not accept positive or negative mortgage declarations. These statements only indicate an intention to provide a mortgage in case of problems and therefore do not provide direct security.
Conclusion: importance of careful choice in security when emigrating outside the EU
For substantial interest holders emigrating to a country outside the EU, it is important to start thinking about an appropriate form of security for the protective assessment. Once the tax authorities impose the assessment, security becomes necessary if a deferral of payment is desired. A well-chosen form of security, such as a bank guarantee, mortgage on real estate or pledge of full-fledged receivables, not only helps to meet the Tax Authorities’ requirements, but also provides peace of mind and clarity on the long-term tax consequences. This allows taxpayers to make optimal use of the deferral of payment without the risk of unexpected collection problems.
