In its judgment ref. no. X Ips 61/2021 of 15th December 2021, the Supreme Court ruled that the payment of the purchase price for the purchase of own shares in a limited liability company does not constitute illicit tax evasion in regard to the taxation of the distribution of profits to shareholders per se, which according to the fourth paragraph of Article 74 of the Tax Procedure Act (ZDavP-2) occurs when taxpayers enter into transactions or several interrelated transactions without a justified business purpose, with the sole or main purpose of obtaining a tax advantage and to prevent the achievement of the objective of the tax regulation.
Simply put, the purchase price for the purchase of own shares in an independent legal transaction shall be taxed as capital gain. It shall be taxed as a payment of dividends in the case of illicit tax evasion only in connection with other concluded legal transactions that serve (only) for different taxation of a limited liability company and other persons who were involved in these transactions. The boundary between illicit tax evasion and permissible tax optimisation shall be determined by a comprehensive assessment of all relevant facts and circumstances of each individual case.
The Supreme Court further assessed whether the payment of the purchase price for the purchase of own shares may constitute a concealed payment of profits under point 7 of Article 74 of the Corporate Income Tax Act (ZDDPO-2) and concluded that only such a legal transaction, which in its amount (and not the basis) (!) represents an unjustified benefit to a qualified shareholder may represent a concealed payment of profits.
In other words, the payment of the purchase price for the purchase of own shares corresponding to the market price shall be taxed as capital gain. Only if a limited liability company pays a purchase price to a qualified shareholder (i.e., a person who directly or indirectly owns 25 % of the value or number of shares in the capital or the management or contractually controls the company or in a manner different from unrelated relationships) that is higher than the market price, the excess over the market price shall be taxed as a dividend payment.
If you have received unfavourable tax treatment in the past due to the purchase of own shares in a limited liability company, we advise you to consult your advisers regarding the legal possibilities of refunding the overpaid tax.