Gift?
The Supreme Court ruled in a case that an inheritance tax assessment was wrongly imposed. The following occurred in this case: a man and a woman were married in September 2015 in community of property. In October 2017, marital agreements were concluded, giving the woman entitlement to 90% of the community assets and the man to 10%. The man (deceased) passed away in December 2017, within 180 days of the marital agreements. The woman was the sole heir of the man.
The issue was whether the marital agreements constituted a gift under the Inheritance Tax Act. The Dutch Tax Authority claimed that it was a gift equal to 40% of the value of the marital property community because the woman received 90% instead of 50%.
No Gift?
The Court of Appeal ruled that the marital agreements were not a gift, but there was tax avoidance (fraus legis). Therefore, inheritance tax was still due. According to the Court of Appeal, it had not been convincingly shown that the marital agreements were made for any reason other than avoiding inheritance tax.
The Court of Appeal found that this conflicted with the purpose and scope of the Inheritance Tax Act. The Court of Appeal considered that, at the time of the marital agreements, there were not nearly equal life expectancies, as the deceased was already seriously ill. Therefore, the marital agreements favored the beneficiary, which is treated similarly to a gift received within 180 days before the deceased’s death under the Inheritance Tax Act.
Exceptional Cases
The Supreme Court initially stated that marital agreements do not constitute a gift, even if the agreements grant unequal shares of community property to the spouses. Only in exceptional cases, where marital agreements are considered tax avoidance, does the resulting shift in assets qualify as an inheritance under the law. Therefore, the Supreme Court ruled that the Court of Appeal had applied an incorrect criterion.
In its ruling on February 16, 2024, the Supreme Court outlined the conditions under which such exceptional cases may be considered. Marital agreements can constitute tax avoidance (fraus legis) if:
the avoidance of inheritance tax was the decisive motive, and moreover it would conflict with the purpose and scope of the Inheritance Tax Act if the shift in assets between spouses and subsequent death of one of them were not considered an inheritance under the law.
According to the Supreme Court, such a conflict arises if, at the time of entering into marital agreements, it is almost certain that the spouse entitled to the smallest share of community property will die before the other spouse. In such cases, it must be assumed that the change had no other practical meaning than avoiding inheritance tax.
No Evidence of Favoritism
The tax inspector did not present facts or circumstances on which, if proven, it could be concluded that it was almost certain at the time of entering into marital agreements that the man would die before the woman. Therefore, according to the Supreme Court, there was no reason to consider the beneficiary’s benefit resulting from the marital agreements, under the application of fraus legis, as an inheritance under the law.
More information
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