Absorption of a Subsidiary / Swiss Tax Consequences

Preliminary remarks

In a merger by absorption of a subsidiary, subsidiary (B) is dissolved and its assets and liabilities are transferred to parent company (A). Furthermore, no share exchange under Art. 7 FusG and no compensation pursuant to Art. 8 FusG occur and, from a civil law perspective, an absorption can hence be carried out under simplified conditions (see Art. 23/24 FusG). A civil law liquidation with transfer of taxable value of earnings (non-genuine merger) might also be accepted for tax purposes.  


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Checklist - Tax consequences of the merger by absorption of a subsidiary

Taxes for


Types of taxes

Absorbed B AG

Absorbing A AG

Income taxes (FITA/CCITHA)Tax deferral of hidden assets according to Art. 61 para. 1 FITAArt. 24 para. 3 CCITHA, if: 
  • Continuation of tax liability in Switzerland, and
  • Previous taxable earnings transferred to A AG


Possibly no tax deferral, if absorbed B AG is a shell company

- Unreal merger losses not deductible (Art. 61 para. 5 FITA)1

- Possible merger gains probably exempt under participation relief (Art. 69 f. FITA)

Losses of the acquired company may be used at most in the acquiring company 
Real estate capital gains tax/Real estate transfer tax- If real estate is transferred, there is a civil law transfer of property, but taxes are deferred in monistic cantons according to Art. 12 para. 4 lit. a CCITHA

Real estate transfer: tax-exempt pursuant to Art. 103 FusG
 
Withholding tax (WHTA)- Liquidation income (Art. 4 para. 1 lit. b WHTA): deferral according to Art. 5 para. 1 lit. a WHTA, provided all retained earnings, also on hidden assets are transferred. 

- Withholding tax-reporting procedure


- Potential issue of "old reserves" (previously in foreign ownership?
)
 
Stamp tax (STA) (Stamp issuance tax/Stamp transfer tax)  
Value added tax (VAT)- Mostly transfer of a going concern notification applicable (Art. 38 VAT Act)

- Changes in a VAT-group must be notified
 


Merger loss: Due to the absorption of a subsidiary, there might be a transfer of a negative difference between book value of the transferred assets and the taxable value of the transferred assets and liabilities. This leads to a merger loss is the result. There is a a difference between real and unreal merger losses. Provided the hidden reserves or the goodwill of the acquired company do not cover the merger loss, there is a proper loss. However, if the merger loss is covered by hidden reserves and/or goodwill, there is no real economic loss and thus, there is an unreal merger loss that is not deductible.
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