Much ink has already been spilled on the subject of capital gains tax on financial assets. The fact is: it is coming, and in practice we will have to learn to deal with it. All transactions against consideration, with the exception of contributions to companies, will be taxable.

The analyses made on a macro and microeconomic level are undoubtedly particularly interesting and the comments on the preliminary draft are often highly justified. The conclusion that taxpayers will “flee” is a valuable insight. In most cases, this flight will not be accompanied by a change of domicile; rather, by a change in the type of investment and in the organisation of the assets.

In any case, practicians will soon have to deal with the new legal text and its practical implementation. And it should come as no surprise that many interpretation problems will arise, sometimes in completely unexpected places. The fact that financial assets have not been systematically taxed until now means that many crucial questions within the scope of tax analysis have been swept under the carpet for years. Because they “weren’t important anyway”. But they certainly will be in the future.

One of the most sensitive points in this area is the question of whether the contribution of shares to a partnership triggers taxability or is exempt from the new capital gains tax.. Even before the law is actually voted, there is already considerable debate about it in the doctrine. The preliminary draft states that the capital gain realised as a result of the contribution of shares to another company will be exempt from capital gains tax. Some believe that the fiscal lawmakers are referring in this instance to companies in the corporate law sense of the word, which naturally implies that partnerships qualify as companies (albeit without legal personality). The UBO register, which is based on company law, illustrates this point: the partners of the partnership must be included in the register, because they are considered shareholders of a company under corporate law.

The preceding interpretation would mean that a contribution to a partnership would not entail any tax. However, as already noted by the Council of State in its advice on the preliminary draft, it must be inferred from a literal reading of the proposed legislative provision that the term “company” must be interpreted in accordance with the Income Tax Code. Under the ITC, companies are entities with legal personality, and the partnership therefore does not qualify. A contribution of shares to a partnership would then entail full taxability.

Even regardless of whether partnerships qualify as companies, in practice the question will arise as to whether, and to what extent, the contribution to a partnership constitutes a “realisation”. The current lack of clarity regarding the scope of the term “realisation” under the preliminary draft will also cause difficulties in estate and asset planning. With regard to many techniques used in succession and asset planning, one may wonder whether they can give rise to capital gains tax because, in strict legal terms, they imply a realisation. This includes accretion clauses and other forms of contingent contracts, which are frequently used in such structures. Better still, what about share loans?

But when is such a transaction against consideration? When is a taxable capital gain actually achieved? One would think that the answer to that question could easily be found in the Income Tax Code. Nothing could be further from the truth. The “fiscal realisation” is a rare and unclear concept. The provision that should offer direction reads as follows: “The tax due for an assessment year is established on the income that the taxpayer has received during the taxable period.” Case law is also rather unhelpful, as it says nothing about what a realisation is exactly, only about when it is taxed. Tax law is grafted onto accounting law, but that law too is bathed in the same intentional vagueness.

It must be concluded that the practical implementation of the capital gains tax will inevitably be accompanied by considerable legal uncertainty. The concept of “fiscal realisation” is underdeveloped in law, case law and legal doctrine, making it impossible to predict how far the practical application of the capital gains tax will reach. What is certain is that the purpose of the capital gains tax is to tax the movement of financial assets and the gains realised in the process. The implementation of the capital gains tax will therefore be accompanied by the introduction of an asset planning strategy that minimises the number of asset shifts in private assets. When movement is taxed, the trick is to stay still.