21 February, 2019

Slovenian Supreme Court ruled against the Financial Administration

In January, the Supreme Court ruled against the current case law practice of the Financial Administration (FURS) regarding the consideration of subsequent payments by shareholders in the assessment of personal income tax from capital gains. As of recently, subsequent payments were not taken into account when calculating the purchase price of business shares being disposed. Consequently, the difference between the sales and the purchase price was considerably higher than it would have been, provided the subsequent payments were taken into account when calculating the purchase price of the business share. Therefore, shareholders seemingly realised high capital gains that were subject to personal income tax.

As mentioned, the Supreme Court rulled against such practice. In doing so, it relied in particular on the fact that subsequent payments are equity investments of shareholders, which increase the company’s assets and hence the account value of the business share. Therefore, it is necessary to consider such payments for the purpose of assessing the capital gains tax. The practical consequence of this is that subsequent payments are included in the cost of equity, which reduces the tax liabilities of shareholders in the sale of shares.

Shareholders must therefore properly identify and make all the payments they make to their company, as this can significantly affect the amount of their taxation on the possible sale of business shares.

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