Portfolio shares - optimizing possibilities(Taxwatch (Tax news in english))
26-08-2009 14:13
Af
Hans-Henrik Nilausen
As of the income year 2010 new tax rules apply for the disposal of shares for companies. From that time two concepts apply for companies. Subsidiary shares/group shares and portfolio shares.
When the shareholding company owns at least 10 % of the share capital or is affiliated with the company the shares are subsidiary shares/group shares. All other shareholdings are as a main rule portfolio shares.
Gains on subsidiary shares/group shares are always tax exempt and losses are not deductible.
Gains on portfolio shares are always taxable and losses are deductible. Gains/losses are computed according to the stock principle with the possibility to elect the realization principle for unquoted portfolio shares.
When the new rules come into force an entrance value is fixed for all portfolio shares equivalent to the market value as of 11 January 2010.
If the total acquisition price for a company’s portfolio shares exceeds the total entrance value, the company may compute a net loss account which may be set of against future gains on portfolio shares. If on the other hand the entrance value exceeds the total acquisition price involving that the shares have increased in value since the acquisition, this increase in value is not taxable no matter whether the shares have been held for more or less than 3 years at the beginning of the income year 2010.
The new law contains several anti avoidance regulations in order to avoid speculation. One of the anti avoidance regulations involve that if the company during the period May 25 to December 31, 2009 have realized gains on shares held for more than 3 years then both the acquisition price and the sales price for the shares have to be included when computing the net loss account.
Consequently it is not possible to increase the net loss account by realizing tax exempt gains on portfolio shares before the beginning of the income year 2010.
In certain situations however it is possible to optimize the company’s tax position relating to portfolio shares.
This possibility applies for companies:
- That hold portfolio shares that have decreased in value since the acquisition and that have been held for less than 3 years and
- Whose income year 2010 has not yet begun.
These companies may consider to realize the mentioned losses which may then be carried forward and deducted against gains in the income year 2010 and subsequent years.
A realization of these losses will never involve a poorer tax position for the company compared to keeping the shares to the beginning of 2010.
In certain situations the tax position may be improved if the tax deductible losses are realized in 2009. This applies:
- If the company also holds port folio shares that have increased in value. If the loss giving shares are kept the deductible loss on these shares will be reduced with the gain on the gain giving shares in connection with the computation of the net loss account, while there will be a full deduction for losses realized in the income years 2009.
- If the loss giving shares are expected to increase in value up to the beginning of the income year 2010 it may be an advantage to realize the loss and repurchase the shares. The loss which is now realized on the sale of the shares will become tax deductible while the increase in value on the repurchased shares up till the beginning of 2010 is not taxable. If repurchase is elected please notice that the tax authorities will demand that there must be a certain period of time between the sale and the repurchase involving a real risk for price fluctuation.
Questions to this article can be directed to Hans-Henrik Nilausen at
HHN@bdo.dk
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