This issue of InfoCourier covers the following topics:
- An update on the forthcoming tax changes
- Summaries of court judgments: Charging personal expenses to company card and fringe benefits received
Please feel free to contact KPMG’s tax advisers with any queries you may have.
We hope you are enjoying reading it!
We wish You All Happy Holidays and Merry Christmas!
Summary of court judgments
Summary of District Court judgment in administrative matter no. 3-19-1079 (28 July 2020)
Charging personal expenses to company card and fringe benefits received
The District Court reviewed a situation where company shareholders used company bank cards to pay personal expenses. The court found that the cash payments by the shareholders into the cash fund of the company cannot be regarded as compensation for what essentially amounts to fringe benefits unless there is sufficient documentation proving that the payments have been made specifically for the purpose of compensating the expenses concerned. The court also noted that a company should keep its cash records in order at all times as any irregularities will cast doubt on the reliability and accuracy of accounting for cash transactions.
Further, the court held that a loan should not be written off the balance sheet unless the creditor can prove convincingly that it has used every tool at its disposal to collect it. The court was of the view that writing off should essentially depend on the measures taken to collect the debt during the period preceding the write-off and an assessment of collectability. The court found that treating the written-off receivables as a gift is justified in this case.
The court further pointed out that in a situation where a company which does not make profit is nevertheless valued at over 1 million euros, the sale of a significant share of the company for the modest amount of 3,000 euros just half a year after the valuation raises doubts as to the nature of the transaction. The court added that as no evidence has been provided to explain the rationale behind the valuation, the amount cannot be considered to reflect the true value of the share interest. Therefore the set-off of an outstanding debt based on the said value was not justified in this case.
The court also reviewed a situation in which the company sold a property in a transaction where half of the payment was received immediately while the other half was not paid. In a situation where a company fails to take action to collect an outstanding debt for over two years and does not demand any contractual penalties for late payment, the court agreed with the tax authority’s view that the company never intended to collect the debt and thus the property was sold at a discount. In the court’s opinion the fact that the seller’s claim was not secured by a mortgage or any other collateral also shows that the seller in fact did not intend to collect the debt.
The court judgment is available here (in Estonian).