Major amendments are proposed to the exchange of shares regulation - could these have an impact on arrangements already in place?
On 19 June 2025, the Ministry of Finance published a draft government bill introducing significant amendments, among other things, to the taxation of dividend distributions following share exchanges. The aim of the amendments would be to prevent inappropriate use of dividend taxation through share exchanges in situations where the ownership remains the same despite the exchange. At the same time, it is intended to facilitate corporate restructuring and the raising of finance. The draft government bill is outlined below, with particular focus on the impact of the proposed legislative amendments on dividend taxation. In addition, the legal issues arising from the retroactivity of the amendments are presented.
The proposed amendments to the draft aim to address the impact on dividend taxation of holding company structures formed through share exchanges, which has been much discussed in the public debate over the last year.
Under current regulations, a company acquiring shares records the fair value of the acquired shares in a share exchange both on its balance sheet and in its net assets for tax purposes. In practice, this arrangement means that the goodwill of the company acquired in the share exchange is treated as part of the assets of the acquiring company. Since the dividend taxation of individual shareholders is based on the assets of the distributing company, a share exchange may, in some situations, reduce the shareholder’s dividend taxation.
The public debate has, however, largely overlooked the fact that the majority of both share exchanges and holding company structures are typically implemented for reasons unrelated to taxation.
Proposed Amendments
The key amendment regarding the valuation of shares would be to prevent inappropriate dividend tax benefits from share exchanges to minimize dividend taxation by providing in the Valuation Act for the valuation principles of shares exchanged in share exchanges. The shares would henceforth be valued in the acquiring company's balance sheet and for tax purposes at their undepreciated cost prior to the share exchange, rather than at fair value, so that the fair value would not inflate the net assets of the acquiring company and thus would not increase the amount of the company's reduced dividend.
It is proposed that Section 52 f of the Business Income Tax Act be amended to include a provision on the acquisition cost of shares obtained through a share exchange. Where the parties to the share exchange are related, the acquisition cost of the shares for tax purposes in the acquiring company would be deemed to be the undepreciated acquisition cost prior to the share exchange. At the same time, a definition of related parties would be introduced, according to which the parties to a share exchange would be deemed to be related if one party directly or indirectly owned more than half of the capital of the other party or directly or indirectly held more than half of the voting rights attached to all the shares of the other party. If the definition of related party is met at the time of, or as a result of, a share exchange, the acquisition cost of the target company's shares for the purposes of taxation of the acquiring limited liability company would be the undepreciated portion of the acquisition cost of the target company's shares prior to the share exchange.
The proposed amendments to the Valuation Act and the Business Income Tax Act would apply retroactively to share exchange arrangements implemented on or after 1 January 2017 and would apply to the taxation of dividend distributions decided after their entry into force as well as to the valuation of the company's assets.
Other proposed amendments concern the maximum amount of cash consideration permitted in a share exchange, which would be increased from the current 10 percent to 50 percent. The consideration may also be paid in cash, if it does not exceed 50 percent of the nominal value of the shares issued as consideration, or, if the shares have no nominal value, 50 percent of the paid-in equity corresponding to the shares.
The provisions on share exchanges in the Business Income Tax Act would be extended to apply to countries outside the European Economic Area, subject to certain additional conditions. This amendment would first apply in the taxation for the year 2026.
In addition, an amendment to the Valuation Act is proposed that would grant a company the right to appeal the comparison value of its own shares. This amendment would first apply in the taxation for the year 2025.
Effects of the Proposed Amendments
It is clear, in line with the stated objective of the draft bill, that the proposed regulation may lead to harsher dividend taxation than the situation prior to the share exchange. The problematic aspect of the bill is that the net assets of the target company would not be taken into account in acquiring the company’s net assets in any way, meaning that the share exchange would lead to harsher taxation than if the arrangement had not taken place. The acquisition cost of the target company prior to the share exchange may be zero euros, yet the target company may have accumulated net assets from its operations, which form the basis for calculating the capital income portion of dividends distributed by the target company. The proposed amendment would not only eliminate the benefits of a share exchange but may, in practice, penalize its implementation.
The definition of related party as described in the draft bill is a key problem. The proposed wording of the provision on related party status may allow for the automatic application of the valuation of shares based on the original cost of acquisition in all share exchanges under Section 52f of the Business Income Tax Act, since the proposed ownership or voting power of more than 50% in the other party would always be met as a result of the share exchange. The amendment would apply to virtually all share exchanges between related parties after 2017, even if the exchange is an intra-group arrangement with a business rationale, and not merely an arrangement for net asset gain.
The combination of retroactivity with equality of taxpayers could also be seen as problematic. The current proposed temporal limitation to share exchange carried out after 1 January 2017 puts taxpayers with identical tax situations (e.g. solo entrepreneur) in a different position solely based on the timing of the share exchange arrangement, without the taxpayers themselves having any prior knowledge of the tax change or the possibility to take it into account.
Although the draft bill states that this would not formally constitute retroactive regulation, the effect would apply to arrangements made under existing law and would retroactively alter their tax consequences. A retrospective amendment to the cost of acquisition may in many situations lead to practical difficulties in calculating the acquisition cost, particularly if the acquiring company has changed ownership since the exchange of shares. The longer the time elapsed since the share exchange, the more challenging it may be to reliably determine the acquisition cost prior to the share exchange.
Furthermore, the draft bill does not address the issue of transfer taxation related to share exchanges, leaving it unclear whether transfer tax in the future will be based on the original acquisition cost or on the basis of the fair value of the shares in accordance with the normal practice in share transfer situations.
Conclusion
It remains to be seen how the government's bill will be modified in the light of the feedback received during the comment period which ended on 15 August 2025. As it stands, the draft government bill contains significant problems, particularly with regard to the scope of the provisions and their retroactive application. While the objectives of the draft are to put an end to share exchanges carried out solely to minimize dividend taxation and, on the other hand, to facilitate business restructuring, the draft does not achieve these objectives in this respect. Even if the draft does not proceed in its current form through the legislative process, it is still advisable to prepare for the proposed changes to dividend taxation related to share exchanges.
