Tax on corporate transactions in Switzerland: overview

A Q&A guide to tax on corporate transactions in Switzerland.

The Q&A gives a high level overview of tax in Switzerland and looks at key practical issues including, for example: the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.

To compare answers across multiple jurisdictions, visit the Tax on corporate transactions Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to tax on corporate transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-mjg.

Michael Nordin and Harun Can, Schellenberg Wittmer
Contents

Tax authorities

1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction?

Federal tax authorities (Eidgenössische Steuerverwaltung)

The Federal Tax Authorities are responsible for enforcing the following federal taxes:

  • Withholding tax.

  • Securities transfer stamp tax.

  • Securities issuance stamp tax.

  • Value added tax (VAT).

Cantonal or communal tax authorities

These authorities operate in the cantons (the 26 states of Switzerland) and are responsible for levying federal, cantonal and communal corporate income taxes on the activities of companies that are resident or operate a business through a permanent establishment (PE) in their canton.

Depending on the canton, the cantonal tax authorities and communal tax authorities are also competent for enforcing:

  • Real estate capital gains taxes.

  • Real estate transfer taxes.

 

Pre-completion clearances and guidance

2. Is it possible to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction?

It is common for tax authorities to grant advance tax rulings. To be binding, an application for a ruling must:

  • Be addressed to the competent authority.

  • Disclose the identities of the parties involved.

  • Describe the intended transaction.

  • Include an assessment of the possible tax implications.

 

Main taxes on corporate transactions

Transfer taxes and notaries' fees

3. What are the main transfer taxes and/or notaries' fees potentially payable on corporate transactions?

Federal securities transfer stamp tax

Securities transfer stamp tax is payable on the transfer of taxable securities for consideration provided a securities dealer (as defined in the Swiss Federal Stamp Duty Act) is involved, either as a party or as an intermediary. Certain transactions and parties are exempt.

Securities dealers include banks, actual dealers in securities and among others, Swiss companies holding securities with a tax book value of more than CHF10 million (as at 1 March 2012, US$1 was about CHF0.9), according to their latest balance sheet.

Taxable securities include:

  • Shares.

  • Bonds (as defined for securities transfer stamp tax purposes).

  • Investments in collective investment schemes.

The rate of securities transfer stamp tax is 0.15% for Swiss securities, levied on the consideration paid. If foreign securities are transferred, the securities transfer stamp tax will be 0.3%. Securities transfer stamp tax is payable by the securities dealer but is usually dependant on contractual obligations borne by the parties to the transaction.

Federal securities issuance stamp tax

Securities issuance stamp tax is triggered when a shareholder contribution to a Swiss resident company's equity exceeds CHF1 million. The rate is the higher of either:

  • 1% of the nominal value of shares issued.

  • 1% of the total amount contributed to the company.

Securities issuance stamp tax is payable by the company. Exemptions apply for restructurings.

Real estate transfer taxes

Real estate transfer taxes are cantonal and communal taxes levied on the transfer of Swiss-sited real estate. They may also be levied on the sale of the majority of the shares in a real estate company, depending on the particular canton or community. They are levied by the cantons or communities where the real estate is situated. The rates vary, and can be up to 3.3% of the fair market value of real estate transferred depending on the canton in which the property is located. Relief may be available in the event of company restructurings.

Notaries' fees

A notarial deed is required for certain corporate transactions such as the incorporation of a Swiss limited liability company (Gesellschaft mit beschränkter Haftung) (GmbH) or a corporation (Aktiengesellschaft) (AG). Further, a notarial deed is required to transfer real estate. Fees payable to the notary will depend on the canton where the deed is executed.

Land register charges

Land registry charges are levied for entries into the land register. The charges vary according to the type of charge and are dependent on the canton in which the real estate is located.

 

Corporate and capital gains taxes

4. What are the main corporate and/or capital gains taxes potentially payable on corporate transactions?

Corporate income taxes

Federal, cantonal and communal corporate income taxes are levied on the profit of Swiss resident companies.

Switzerland applies an "all income" approach. This means that, except for real estate capital gains in certain cantons (see below) the taxable profit is in principle determined according to the Swiss generally accepted accounting principles (GAAP) accounts of the Swiss resident company.

Under domestic Swiss tax law, the tax base comprises the company's entire worldwide profit, except for foreign PEs (under internal law a PE is a fixed place in which an important part of the business activity is conducted) and real estate located/situated outside Swiss territory.

A Swiss company's losses can be carried forward for seven years and set off against taxable profits.

The statutory tax rate of federal, cantonal and communal corporation tax varies depending on the canton and community. The combined effective tax rates considering the accepted deduction of the corporate tax itself varies between 12.6% and 24.2%. If a special cantonal tax privilege such as a holding privilege is granted, the rate may be even lower. There is no group tax regime available for corporate income taxes.

Real estate gains taxes

Some cantons or communities levy a separate real estate capital gains tax on the disposal of real estate or on the sale of the majority of the shares in a real estate company. However, capital gains subject to real estate gains taxes are exempt from cantonal corporation tax.

 

Value added and sales taxes

5. What are the main value added and/or sales taxes potentially payable on corporate transactions?

VAT

VAT is payable on the supply of goods or services by businesses that are taxpayers for VAT purposes, on the import of goods or on services received from abroad. Certain goods and services are exempt, in particular:

  • Financial services.

  • Real estate transactions.

  • The transfer of securities including shares.

Exports and turnover generated outside of Switzerland or Liechtenstein are not subject to Swiss VAT. A business is generally a VAT taxpayer if it earns taxable turnover of more than CHF100,000 per year. VAT is also payable by persons who receive services from persons located abroad.

Swiss entities that need to be consolidated can, for Swiss VAT purposes, form a VAT group (see also Question 9, VAT).

Taxpayers subject to VAT may be eligible for a full or partial refund of input VAT. The standard rate is currently 8%.

In a transaction, VAT may be due if assets are transferred (taxable delivery of goods) or if any rights, in particular IP rights, are sold (treated as a supply of services). The transfer of a business as a going concern is subject to VAT but instead of paying the tax the parties must use a notification procedure (see Question 14, VAT).

 

Other taxes on corporate transactions

6. Are any other taxes potentially payable on corporate transactions?

Dividend withholding tax

In corporate transactions, the parties must regularly assess whether the transactions reduce the open or hidden reserves of a company, which would be subject to dividend withholding tax on distribution (see Question 8).

 

Taxes applicable to foreign companies

7. In what circumstances will the taxes identified in Questions 3 to 6 be applicable to foreign companies (in other words, what "presence" is required to give rise to tax liability)?

Corporate income taxes

A foreign company pays limited Swiss corporate income taxes if it maintains a PE in Switzerland. If a foreign company is effectively managed and controlled from Switzerland, it is fully liable to Swiss corporate income taxes, unless a double taxation treaty protects the company from liability for Swiss tax. Further, a foreign company owning Swiss real estate will be liable for corporate income taxes on any profits realised by the property.

Real estate gains taxes

A foreign owner of Swiss real estate is subject to real estate gains taxes. These taxes are levied in the location where the real estate is situated.

VAT

A Swiss PE of a foreign corporation can be subject to VAT. In addition, a foreign company delivering goods within Switzerland may also become liable to Swiss VAT. Finally, an importer of goods must pay import VAT.

Dividend withholding tax

Foreign companies are only subject to dividend withholding tax if they have their legal seat in Switzerland or are effectively managed and controlled from Switzerland.

Securities transfer stamp tax

Securities transfer stamp tax must be paid if a Swiss resident securities dealer is involved as a party or as an intermediary to the transaction, irrespective of where the seller or buyer is domiciled/ordinarily resident.

Securities issuance stamp tax

Foreign companies are not subject to securities issuance stamp tax if they are not incorporated in Switzerland or effectively managed and controlled from Switzerland.

Real estate transfer taxes

Foreign companies are subject to real estate transfer taxes only if they transfer Swiss-sited real estate.

Notaries' fees

Foreign companies may be subject to notaries' fees if a public deed is required.

Land register charges

Foreign companies must pay land register charges if they sell, acquire or transfer Swiss-sited real estate.

 

Dividends

8. Is there a requirement to withhold tax on dividends or other distributions?

Dividend withholding tax

Dividend withholding tax must be paid on open or hidden dividend distributions of Swiss companies (hidden dividend distributions can include excessive interest payments to related parties). The tax rate is 35%. Foreign shareholders are entitled to a refund according to the applicable double taxation treaties or under Article 15 of the Savings Tax Agreement between the EU and Switzerland. A notification procedure applies to intragroup dividends paid within Switzerland and to certain corporate shareholders resident within the EU or states with which Switzerland has a double taxation treaty.

 

Share acquisitions and disposals

Taxes potentially payable

9. What taxes are potentially payable on a share acquisition/share disposal?

Securities transfer stamp tax

Securities transfer stamp tax is payable on the sale of shares in a Swiss company, if a bank or another securities dealer in Switzerland acts on its own account or as an intermediary (see Question 3, Federal securities transfer stamp duty).

Corporation and capital gains taxes

A sale of shares held as private assets. A capital gain from the disposal of shares by individuals resident in Switzerland who hold shares in their private property is generally not subject to income tax. Under indirect partial liquidation provisions, the tax authorities can reclassify tax-exempt capital gains as taxable dividend income, if all of the following apply:

  • Shares representing at least 20% of the share capital of a company are sold from the private property of an individual to a business (of an individual or a company).

  • The company distributes assets not needed for its business operations within a period of five years after the sale of the shares.

  • The company has distributable profits or reserves at the date of completion.

  • The seller and buyer co-operate in the distribution.

A sale of shares held as business assets. Swiss-resident corporate and individual taxpayers (and corporate and individual taxpayers resident abroad) that hold shares as part of their Swiss business assets must declare any capital gains on shares sold in their income statements for the relevant tax period. They will also be subject to individual or corporate income tax on any net taxable earnings (including a capital gain on the sale of shares) for this period. Capital losses are classed as tax deductible. This also applies to Swiss-resident individuals who, for the purposes of income tax, are classified as professional securities dealers (by reason of frequent dealing and debt-financed purchases, for example).

Real estate gains taxes. Cantonal taxes on real estate gains may be due on the sale of the majority of the shares in a real estate company (see Question 4, Real estate gains taxes). Some cantons will also levy a real estate transfer tax on such a sale (see Question 3, Real estate transfer taxes).

VAT

Sales of shares are exempt from Swiss VAT. Input tax recovery issues may arise for the seller and buyer unless the seller or buyer is a Swiss resident holding that qualifies for a full input VAT recovery. If the target is a member of the seller's VAT group, it must leave the VAT group effective from completion, and adjustments should be made to ensure that it bears and recovers only its correct proportion of the pre-sale VAT and input VAT. Members of a VAT group are jointly and severally liable for the sum total of VAT payable, although group internal turnover is outside the scope of VAT.

 

Exemptions and reliefs

10. Are any exemptions or reliefs available to the liable party?

Securities transfer stamp tax and notaries' fees

Securities transfer stamp tax on the sale of Swiss shares can be avoided if:

Corporate income taxes

Participation relief. Companies benefit from participation relief on disposals of shares that constitute 10% or more of another company's share capital or profit entitlement. The shares must have been held for at least a 12-month period. Such an exemption will reduce the companies' taxable income for corporate income taxes by the amount of the capital gain from the disposal of the shares, less administration and proportional financing costs.

Holding and domiciliary companies. Companies that benefit from a cantonal tax status, such as holding and domiciliary companies, are not subject to income tax, including tax on capital gains from the disposal of shares, at cantonal and communal level. Effectively, they are only liable to federal taxes at an effective rate of 7.8%, as the tax itself is tax-deductible (see Question 4, Corporate income taxes).

Restructuring. No capital gains are realised if the seller uses rollover relief or transfers the shares in a tax-neutral restructuring such as a (see Questions 19 and 26):

  • Merger.

  • Demerger.

  • Intragroup transfer.

Replacement of participation: rollover relief. The seller does not realise a capital gain if he uses the proceeds from the sale of a participation of at least 10%, which have been held for at least one year to purchase a participation in a different company (reinvestment). Any gain is rolled over until the sale or redemption of the reinvested shares.

 

Tax advantages/disadvantages for the buyer

11. Please set out the tax advantages and disadvantages of a share acquisition for the buyer.

Advantages

The buyer can generally use the target company's carried-forward tax losses, even after a transfer of the target company's shares.

Disadvantages

The buyer may not be able to set off financing costs against future profits of the target company. There is no group taxation election available.

 

Tax advantages/disadvantages for the seller

12. Please set out the tax advantages and disadvantages of a share disposal for the seller.

Advantages

The private seller may benefit from a tax free capital gain unless the sale is considered an indirect partial liquidation or he is classed as a securities dealer.

The corporate seller may benefit from the following advantages on a share sale:

Disadvantages

Losses carried forward in the target company cannot be set off against a capital gain from the sale of the shares.

 

Transaction structures to minimise the tax burden

13. What transaction structures (if any) are commonly used to minimise the tax burden?

Corporation and capital gains taxes

Because companies benefit from participation relief on the sale of participations of at least 10%, taxation of capital gains is very limited or avoided entirely (see Question 10, Corporate income taxes). Tax can be avoided altogether by using holding structures (see Question 34).

 

Asset acquisitions and disposals

Taxes potentially payable

14. What taxes are potentially payable on an asset acquisition/asset disposal?

Corporation and capital gains taxes

Capital gains. Corporate income taxes are generally payable on capital gains from the sale of assets (see Question 4, Corporate income taxes). The sale of real estate can be partially exempt from cantonal corporate income taxes but will be subject to cantonal real estate gains taxes (see Question 4, Real estate gains taxes).

VAT

VAT at a rate of 8% is potentially levied on the sale of assets located in Switzerland. The parties must use a notification procedure that avoids liability VAT if:

  • A restructuring for corporation tax purposes takes place (see Question 26).

  • The transaction qualifies as a transfer of all or part of the assets of a business according to the Merger Act.

  • Both the seller and the buyer are taxable persons for Swiss VAT and either of the above applies.

The notification procedure always applies for transfers of assets between related persons. If the parties are not related, the notification procedure is compulsory if the tax charge exceeds CHF10,000. The notification procedure is optional where this limit is not exceeded.

The parties should make contractual arrangements to ensure that the notification procedure applies, or establish the consequences of a denial of applicability of the notification procedure by the tax authorities leading to VAT liability.

Real estate transfer taxes and notaries' fees

The sale of real estate can be subject to real estate transfer tax and notaries' fees (see Question 3, Real estate transfer taxes and Notaries' fees).

 

Exemptions and reliefs

15. Are any exemptions or reliefs available to the liable party?

Corporation tax and real estate gains tax

Replacement of business assets and real estate: rollover relief. For corporation tax purposes, rollover relief will be granted on the sale of assets used for the company's trade or business if the proceeds of the sale are reinvested in other assets.

The replacement defers the taxation of the gain (rollover) until the disposal of the replacement asset. Rollover relief also applies to real estate used for the company's trade or business for the purposes of cantonal real estate gains taxes, if the proceeds of the sale are reinvested in other real estate with the same function.

Amortisation. The buyer can generally write down and amortise the assets, including goodwill, tax effectively.

Loss relief. The seller can set off a potential loss against profits. Losses carried forward by the seller can be set off against a capital gain from the sale of assets.

Real estate transfer taxes. A tax-neutral restructuring may be exempt from real estate transfer taxes (see Question 3, Real estate transfer taxes).

 

Tax advantages/disadvantages for the buyer

16. Please set out the tax advantages and disadvantages of an asset acquisition for the buyer.

Advantages

An asset acquisition has the following tax advantages for the buyer:

  • The buyer may be able to amortise the acquired assets tax-effectively, including goodwill.

  • The buyer may be able to set off financing costs against future profits of the transferred business.

Disadvantages

The buyer cannot use any losses carried forward by the seller.

 

Tax advantages/disadvantages for the seller

17. Please set out the tax advantages and disadvantages of an asset disposal for the seller.

Advantages

Sellers benefit from the following advantages on an asset sale:

  • A potential loss can be set off against profits.

  • Losses carried forward by the seller can be set off against a capital gain from the sale of the assets.

Disadvantages

The disadvantages of an asset sale for the seller are that:

  • Corporate income taxes are generally payable on capital gains from the sale of assets (see Question 4, Corporate income taxes).

  • The sale of real estate may be subject to cantonal real estate gains and transfer taxes.

 

Transaction structures to minimise the tax burden

18. What transaction structures (if any) are commonly used to minimise the tax burden?

Spin-off

The asset purchase can be structured as a share purchase using a spin-off (transfer of the business to a newly established subsidiary and sale of the shares in the subsidiary). The tax-neutrality of a spin-off is not subject to a five-year holding restriction period. The transferred business must qualify as a business unit, and the transferring entity must still operate a second business unit after the sale.

 

Legal mergers

Taxes potentially payable

19. What taxes are potentially payable on a legal merger?

If a legal merger does not qualify as a tax-neutral restructuring (see Question 26), then taxes that may be payable on a legal merger are:

 

Exemptions and reliefs

20. Are any exemptions or reliefs available to the liable party?

A legal merger qualifies as a tax-neutral restructuring (see Question 26) if the assets and liabilities are transferred at tax book value and the entity continues to be liable to tax in Switzerland. The tax neutrality covers:

  • Corporate income tax.

  • Real estate gains tax.

  • Real estate transfer tax.

  • Securities transfer stamp tax.

  • Securities issuance stamp tax.

  • Dividend withholding tax.

The merger is also tax neutral for the shareholders unless any cash consideration and increase in nominal value or capital contribution reserves occurs (see Question 8). Such cash consideration, increase in nominal value or capital contribution reserves are taxable income for Swiss resident individual shareholders holding the shares in the merged entity as their private property.

 

Transaction structures to minimise the tax burden

21. What transaction structures (if any) are commonly used to minimise the tax burden?

A legal merger is usually structured as a tax-neutral restructuring at tax book value (see Question 26).

 

Joint ventures

Taxes potentially payable

22. What taxes are potentially payable on establishing a joint venture company (JVC)?

The taxes that are potentially payable include:

 

Exemptions and reliefs

23. Are any exemptions or reliefs available to the liable party?

Securities issuance stamp tax

Securities issuance stamp tax can be avoided if the setting up of the JVC can be regarded as a transaction that is similar to a merger or demerger and therefore meets the requirements of a tax-neutral restructuring (see Question 26). The JVC can be funded through shareholders' loans (which will not attract securities issuance stamp tax), rather than just through equity.

VAT

It is important to ensure that the JVC can reclaim possible input VAT. To achieve this, the JVC should be registered as a VAT payer.

Securities transfer stamp tax

Securities transfer stamp tax on the transfer of taxable securities (in particular shares) is not due unless a Swiss securities dealer is involved (see Question 3, Federal securities transfer stamp tax). It is avoided if the JVC does not become a securities dealer (which cannot occur in the first six months after incorporation) and another Swiss securities dealer (for example, an investment bank) does not act as a party or intermediary.

 

Transaction structures to minimise the tax burden

24. What transaction structures (if any) are commonly used to minimise the tax burden?

Securities issuance stamp tax can be avoided if the setting up of the JVC is classed as a quasi-merger or a horizontal demerger, thereby meeting the requirements of a tax-neutral restructuring, which will lead to an exemption of securities stamp issuance duty taxes (see Question 26).

 

Company reorganisations

Taxes potentially payable

25. What taxes are potentially payable on a company reorganisation?

If a company restructuring does not qualify as a tax-neutral restructuring (see Question 26) the following taxes are potentially payable:

 

Exemptions and reliefs

26. Are any exemptions or reliefs available to the liable party?

Tax-neutral restructuring

A company restructuring can qualify as a tax-neutral restructuring. Restructurings generally include:

  • Legal mergers. See Question 19.

  • Vertical demergers. A demerger is tax neutral if all of the following applies:

    • the demerging company carries on at least two business units, one of which is transferred to another company;

    • the tax book values remain unchanged; and

    • the businesses concerned remain subject to the same income tax level in Switzerland.

    There is no disposal restriction period imposed on a tax-neutral demerger. Demergers of holding, finance, licensing and real estate companies are also possible. However, these types of companies will need to meet certain requirements regarding business activities and employees to qualify as a business under the tax authorities' current practice.

  • Share-for-share exchanges (quasi-mergers). A share-for-share exchange is tax neutral if a company exchanges its own shares for shares in a different company and controls at least 50% of the voting rights in this company immediately after the transaction. The use of consideration other than its newly issued or own shares does not prevent the transaction being tax neutral, provided that this sum does not exceed 50% of the value of the total consideration, including the shares.

  • Horizontal demerger (hive downs). A company can transfer a trade or business or a fixed asset tax neutrally at tax book value to a newly established or existing subsidiary in Switzerland. A disposal restriction period of five years applies unless participations of at least 20% are transferred at tax book value to subsidiary companies.

  • Intragroup transfers of assets. A company can transfer a participation of at least 20% tax neutrally to a trade or business, or a fixed asset to a group company within Switzerland at tax book value. Group companies are defined as companies that are ultimately controlled by the same entity, with at least 50% of the voting rights. A disposal and de-grouping restriction period of five years applies both to the asset transferred and to the group membership. The transfer will only be tax neutral if the acquiring entity is subject to Swiss taxation. The individual cantons may levy cantonal corporation tax if the acquiring entity benefits from a special cantonal tax status.

  • Changes of corporate form (transformations). A company can change its corporate form into another legal entity. Such a change is tax neutral, as long as the tax book values remain unchanged and the company continues to be liable to taxation in Switzerland.

 

Transaction structures to minimise the tax burden

27. What transaction structures (if any) are commonly used to minimise the tax burden?

One or more of the forms of tax-neutral restructurings are usually applied in structuring corporate reorganisations (see Question 26).

 

Restructuring and insolvency

28. What are the key tax implications of the business insolvency and restructuring procedures in your jurisdiction?

Tax implications for the business

Recapitalisation measures are generally taken in exceptional circumstances by companies that no longer have at their disposal disclosed or undisclosed reserves against which they could set off losses. The aim of these measures is to generate funds.

Corporation tax. Many recapitalisation measures are corporation tax neutral (that is, they have no corporation tax consequences and loss carry-forwards remain available for set off against future profits). These measures include:

  • Open recapitalisation (that is, a reduction of nominal capital without repayment of funds to the shareholders and a subsequent capital increase resulting from new funds from shareholders).

  • Contributions without consideration by shareholders (à-fonds-perdu grants).

  • Waiver of debt. This applies in some cantons and in certain circumstances at a federal level (especially where the loan is qualified as equity under the thin capitalisation rules).

Other recapitalisation measures are deemed extraordinary income for corporation tax purposes and therefore result in a taxable profit for the recapitalised company. This profit must be set off against tax losses and carry-forwards. These measures include:

  • Waiver of debt by third parties (and, in some instances, by shareholders).

  • À-fonds-perdu grants from unrelated third parties.

Securities issuance stamp tax. Most recapitalisation measures that are treated as corporation tax neutral will trigger the 1% securities issuance stamp tax (see Questions 3 and 22). However, recapitalisation measures concerning amounts of up to CHF10 million are, in principle, exempt. Further, the federal tax authorities can waive securities issuance stamp tax on request if levying would cause evident hardship.

Dividend withholding tax. Recapitalisation measures do not generally trigger dividend withholding tax.

 

Share buybacks

Taxes potentially payable

29. What taxes are potentially payable on a share buyback? (List them and cross-refer to Questions 3 to 6 as appropriate.)

A share buyback qualifies as either:

  • A purchase. In this case, certain tax advantages apply (see Question 30).

  • A partial liquidation. Dividend withholding tax at 35% is due on the difference between the consideration and the nominal value of the shares (see Question 8). For shareholders that hold the shares as private property, the consideration is taxable income from capital investment. The transaction in principle qualifies as a partial liquidation if the shares are being bought back during a capital decrease.

 

Exemptions and reliefs

30. Are any exemptions or reliefs available to the liable party?

The share buyback qualifies as a purchase if the company:

  • Does not buy back the shares during a capital decrease.

  • Does not hold more than 10% of its own shares after the buyback.

  • Sells the shares within six years. If the shares are not sold in this period, the tax authorities in principle reclassify the purchase as a partial liquidation, and levy dividend withholding tax at the level of the company, and income tax at the level of the shareholder (see Question 29).

If the share buyback qualifies as a purchase rather than a partial liquidation (see Question 29), dividend withholding tax will not be levied, and shareholders holding the shares as private property would realise a tax-neutral capital gain.

 

Transaction structures to minimise the tax burden

31. What transaction structures (if any) are commonly used to minimise the tax burden?

If the company intends to buy back shares to decrease its capital (see Question 29), it opens a second trading line in which dividend withholding tax is levied on the consideration. Therefore, only shareholders that hold the shares as business assets and who are entitled to a full refund of dividend withholding tax sell the shares on this second trading line (see Question 8).

If the company does not intend to buy back shares to decrease the share capital, it must observe the 10% limit and sell the shares within a period of six years, to avoid the deemed partial liquidation tax treatment (see Question 30).

 

Private equity financed transactions: MBOs

Taxes potentially payable

32. What taxes are potentially payable on a management buyout (MBO)?

MBOs are often structured as a share deal and are subject to the usual tax implications (see Question 9). The acquisition can be made through a holding company. If the holding company is newly established, securities issuance stamp tax may be incurred, depending on how the holding company is financed (see Question 3, Federal securities issuance stamp tax).

 

Exemptions and reliefs

33. Are any exemptions or reliefs available to the liable party?

There are no special reliefs available for MBOs.

 

Transaction structures to minimise the tax burden

34. What transaction structures (if any) are commonly used to minimise the tax burden?

The acquisition is often effected via a holding company (see Question 32). This structure raises various tax issues.

Corporate income taxes

There is no tax consolidation in Switzerland. One important issue is whether and to what extent interest expenses to finance the purchase of the target company's shares can be set off against the profits of the target company. The tax authorities may view a legal merger between the holding company and the target company as abusive. In practice, they can deny that interest expenses are tax deductible from the profits of the target company.

For this reason, indirect measures to achieve a similar result must be considered. The extent to which they are effective will depend on the individual circumstances of the company. These measures can include:

  • Reducing the equity of the target company by means of dividend payments or share capital reductions.

  • Service agreements, that is, charging arm's-length fees on intragroup services.

  • Leveraged purchase of assets or of a participation through the target company.

Income taxes

If management buys shares in a company and finances the acquisition with debt, it can qualify as professional securities dealers. This has the negative effect that any gain from the subsequent sale of the shares may be subject to income tax and will not be a tax-free capital gain (see Question 9).

 

Reform

35. Please summarise any proposals for reform that will impact on the taxation of corporate transactions.

Discussions are in progress concerning a proposed further revision of corporate tax law, including issues such as the:

  • Elimination of capital tax at cantonal level.

  • Replacement of dividend withholding tax with a savings tax.

  • Amendment of the cantonal tax privileges for corporations.

 
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