In a recent ruling, the Federal Court addressed the tax classification of the proceeds from the sale of a minority stake in a company with mining rights in Guinea-Bissau by a taxpayer who was employed full-time (100% workload) in a salaried position.
The Federal Court classified the proceeds as income from self-employment rather than a tax-exempt private capital gain.
With the following reasoning:
- The sale of the company was ultimately the goal of the taxpayer's long-term, planned, and systematic activities (not just a randomly occurring opportunity).
- The taxpayer was personally responsible for key stages of the mining project, actively promoted the sale, and dedicated a significant portion of his time to the realization of the project.
- Furthermore, the taxpayer took entrepreneurial risks with the sale of the shares. He invested approximately USD 1.33 million in the project and provided shareholder loans.
- The taxpayer was not only prominently involved in the development of the project prior to the sale, but also systematically and strategically advanced it. He acted financially like an entrepreneur, willing to bear financial risks that a shareholder merely managing private assets would not typically undertake.
- The question of whether external financing was involved was left open. Even if self-financing were assumed, the financial commitment was extensive and involved nearly existential risks.
Court's Conclusion:
Due to the scope of his involvement and direct engagement, the taxpayer was engaged in self-employment. This constitutes a ๐ฝ๐ฎ๐ฟ๐-๐๐ถ๐บ๐ฒ ๐ฏ๐๐๐ถ๐ป๐ฒ๐๐ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐.
This decision sets a broad precedentโโmany entrepreneurs invest significant sums in their companies with the intention of selling them later.
Are all such activities now to be classified as self-employment?
What are your thoughts?
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By the way, you can find the ruling here.
