Transposition

Preliminary Remarks

Under the criteria mentioned in Art. 20a para. 1 lit. b FITA and Art. 7a para. 1 lit. b CCITHA certain transactions of a Swiss resident private shareholder can trigger income taxes even if such shareholder does not directly receive cash payments.

Legal Materials

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Jurisprudence

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Practice of Tax Authorities

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Literature

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Others

Tax consequences of transposition

Facts

X is the sole shareholder of A AG and B AG. X would like to sell his participation rights in the A AG to the B AG. Before the transaction, the balance sheets of the two companies look as follows:


Balance sheet A AG


Balance sheet B AG

Current assets        

        1'600

3'000

Distributable equity

   Current assets       

2'600

6'000

Share capital

Fixed assets

        2'400

1'000

Share capital

    Fixed assets

3'400

 

 

        Total

        4'000

4'000

Total

              Total

6'000

6'000

Total

 

  • A  AG has retained earnings in the amount of CHF 3 mio., i.e. it has a deferred tax substrate.      
  • B AG has no disclosed reserves. 
  • Both A AG and B AG have no hidden reserves.

Tax consequences of the liquidation of A AG:
  • A AG has no hidden assets and for this reason, it is not subject to income tax. 
  • A AG has CHF 4 mio. in cash, which it distributes as liquidation proceeds to shareholder X. 
  • After repayment of capital of CHF 1 mio. in favour of shareholder X, CHF 3 mio. remain subject to withholding tax (Art. 4 para. 1 lit. b WHTA in conjunction with Art. 20 WHT Ordinance) and for X constitute income from investment (Art. 20 para. 1 lit. c FITA).
  • Shareholder X may benefit from the partial-taxation procedure (Art. 20 para. 1bis FITA).

Alternative sale of A AG to B AG

B AG increases its share capital by contribution in kind (A AG shares) from shareholder X of the amount of CHF 4 mio. The balance sheets of the two companies after the capital increase look as follows:

Balance sheet A AG

Balance sheet B AG

Current assets         

        1'600

3'000

Distributable equity

Current assets       

        2'600

10'000

Share capital

 Fixed assets

        2'400

1'000

Share capital

Fixed assets

        3'400

 

 

 

 

 

 

Part. A AG

        4'000

 

 

        Total

        4'000

4'000

Total

        Total

      10'000

10'000

Total



Tax consequences of this transaction for shareholder X:

Avoidance of the tax consequences:

With the so-called additional paid-in cpaital method, the tax consequences of transposition may be prevented. The following possibilities are available:
  • Open agio-method
The acquiring company increases its share capital only to the extent of the nominal value of the acquired shares and the remaining amount is booked in the additional paid-in capital account (not booked as withholding tax free capital contribution). It should be noted that the aquired reserves are not booked on capital reserves, as they may be repaid tax-free pursuant to the capital contribution principle. 
  • Hidden agio-method
The acquired participation will be booked by the acquiring company at nominal value in the balance sheet. This results in hidden reserves in the amount of the difference between market value and nominal value.

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