Spin-off (vertical demerger) / Swiss Tax Consequences

Preliminary remarks

From a civil law perspective, a fiscal vertical split (also called spin-off or demerger) may, in accordance with the Circular No. 5 of the FTA dated 1.6.2004, para. 4.3.1, be done by a:

(a) split-up (Art. 29 lit. a FusG),

(b) spin-off (Art. 29 lit. b FusG),

(c) Establishment of a new subsidiary and transfer of assets (Art. 69-77 FusG) - by contribution in kind or transfer of assets with a subsequent transfer of the new subsidiary shares to existing shareholders with or without reducing the capital of the distributing company (common procedure), or

(d) dividends in-kind of assets and liabilities of the spin-off business operations to the shareholders who incorporate the new parent company and whose shares are paid in full by contribution in kind of the obtained assets and liabilities. 




Chart







Checklist - Tax consequences of a vertical spin-off


         Taxes for


Types of taxes

AB AG

New Spinn off B AG

Shareholders, individuals, shares as private asset (private investor) 

Shareholders, individuals, shares held as business asset or shareholder, legal entity not benefiting for participation relief

Shareholders, Legal entity qualified for participation exemption 

Income taxes (FITA/CCITHA)- Deferral of the taxation of hidden reserves according to Art. 61 para. 1 lit. b FITA and Art. 24 para. 3 lit. b CCITHA provided:
  • Transfer of business units to new B;
  • Transfer at tax values;
  • Transferor and transferee shall both carry on a business unit;
  • Tax liability in Switzerland is maintained; and
  • Adequate equity is transferred to B AG (No blocking period!)

- Open and hidden capital contribution resulting in neither profit nor loss (Art. 60 lit. a FITA)

- Losses of the acquired business might be offsetable at the B AG level  (tax ruling required)
- Nominal share value increases:
in principle taxable investment income (potentially not taxable at the cantonal level)

- Nominal share value gains offsettable with nominal value losses

Compensation cash payments generally taxable investment income (set-off with nominal value  losses, e.g. from capital reduction or reduction of capital contribution reserve possible) 
 

- If previous taxable value continued, no tax consequences (Art. 19 para. 1 lit. c FITA or Art. 61 para. 1  lit. c FITA)

- Compensation cash payment constitute taxable investment income (possibly neutralized via simultaneous depreciation of share values)  

 If previous taxable value continued, no tax consequences

Compensation cash payment taxable investment income (possibly neutralized via simultaneous depreciation or qualify for participation relief) 

Real estate capital gains tax/Real estate transfer tax- Transfer of real estate under civil law? Tax-deferral (Art. 12 para. 4 lit. a CCITHA) and tax-exemption for real estate transfer tax (Art. 103 FusG) 
    
Withholding tax (WHTA)- Transfer of open and hidden reserves exempt from withholding tax, provided requirements of Art. 61 para. 1 lit. b FITA are met
- Nominal value increase subject to withholding tax, unless new company has made corresponding capital reduction

- Reclaim or reporting procedures  - Reclaim or reporting procedures  
Stamp tax (STA) (Stamp issuance tax/Stamp transfer tax)- Stamp transfer tax:
Securities dealer? Tax-exemption of the transfer of taxable instruments paid my assumption of third-party debt, pursuant to 
Art. 14 Abs. 1 lit. i STA



- Stamp issuance tax: Art. 5 para. 1 lit. a STA (capital increase) and Art. 5 para. 2 lit. a STA (capital contribution), but tax-exempt pursuant to Art. 6 para. 1 lit. abis STA, provided requirements of Art. 61 FITA are fulfilled
 

 Stamp transfer tax:
Securities dealer? Tax-exemption of the transfer of taxable instruments paid my assumption of third-party debt, pursuant to Art. 14 Abs. 1 lit. i STA
   
Value added tax (VAT)- Reporting of a going concern Art. 38 VATA

- Check own use or deduction of input VAT reduction?

- Check VAT liability regarding Art. 10 ff VAT Act

- Own use or deduction of input VAT reduction? 


- New company in VAT group? 
   

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