Current questions on withholding tax and stamp duties, including international issues (2019)
Workshop on the occasion of the ISIS) seminar on 3/4 June 2019 entitled "News on corporate tax law
Case 1: Emissions levy (remediation)
Kunst AG, based in Canton B, aims to build up and maintain a collection of contemporary art from the Alpine countries. The Kunst AG makes the corresponding art objects (paintings, sculptures etc.) available within the framework of an exhibition open to the general public. It has a share capital of 5'000 fully paid-up registered shares with a nominal value of CHF 1'000 each. 70% of the shares are held by the patron of the arts Mrs. Gutekunst and 30% by Künstlich AG. Kunst AG is not a charitable company and is therefore not exempt from stamp duty within the meaning of Art. 6 para. 1 lit. a of the Federal Law of 27 June 1973 on Stamp Duties (StG; SR 641.10).
As of 1 January 2010 Kunst AG reported a total loss of CHF 29,000,000 in its balance sheet. On its only notable asset "works of art" with a book value of CHF 24 million, there were hidden reserves of CHF 15,000,000 at that date.
On September 22, 2010 an agreement was concluded under which the two shareholders waive, with effect from January 1, 2010, a total of CHF 34,800,000 as "capital contribution" on an interest-free shareholder loan granted to Kunst AG. Based on these waivers of claims, Kunst AG will be able to continue its business activities for years to come.
- How are the waivers of claims by Mrs. Gutekunst and Künstlich AG against Kunst AG to be qualified under emissions tax law?
- By what legal remedy can a formal order of the FTA be challenged in the area of remission of the emissions levy? What is the further appeal procedure?
Case 2: Hidden equity
Finanz GmbH, headquartered in the canton of Zurich, is a "closed down" Group company without any activity. It belongs to an American listed group, the "A Group". In 2013, the A Group will acquire the Italian B Group via AB-Italy- Holding AG, based in Italy. In order to finance the transaction, A-Holding Inc, USA, the group parent company, grants Finanz GmbH a loan of EUR 600,000,000. Finanz GmbH passes on this loan to a large extent to AB-Italy-Holding AG, with a spread of 0.25 percent between financing and refinancing. In 2017, the interest rate of 1.25 percent was used for the liability loan.
The structure and loan relationships are therefore as follows:
The balance sheet and the income statement of Finanz GmbH in EUR are as follows (example 2017; from 2013 onwards, balance sheet and income statement are approximately always the same, converted CHF / EUR at 1.20 / 1.00)
- Which benefits in kind can be present?
- Who is the recipient of any monetary benefits?
- Which withholding tax claims can still be asserted by the FTA in 2019?
- Does it matter if the Finanz GmbH has offset hidden equity and interest on hidden equity on its own initiative in its profit and capital tax return?
- What is the legal basis for reimbursement and what are the conditions?
- Which declaration must the Finanz GmbH make or should have made?
Case 3: Reimbursement
The A-SICAV-LUX, Luxembourg (hereinafter referred to as "A-SICAV"), a Luxembourg investment fund, plans to invest in a river vessel portfolio in Switzerland, structured through a majority interest in the CH holding company and financed by the A-SICAV. A-SICAV will make an investment of approximately EUR 20,000,000 in CH-Holding via A-Luxco, a Luxembourg holding company directly and wholly owned by it, with A-Luxco thereafter holding at least 70-80 percent of the shares in CH-Holding, while a maximum of 20-30 percent of the shares in CH-Holding will be held by the operational management via a Swiss company, M-AG. CH-Holding in turn is a holding company which will hold the interests in the shipowning and shipping companies. CH-Holding will be fully equity-capitalised; the external financing required for the purchase of ships will be obtained by the operating companies from banks. Both the CH holding company and the operating shipowning and shipping companies will be based in Switzerland. Existing charter contracts, which will also be taken over by the new structure, are concluded exclusively with third parties.
A-SICAV is managed by A-Private Equity AG, Germany (hereinafter referred to as "A-PE-AG"). A-PE-AG is a German investment company which, since its foundation in 1997, has specialized in the acquisition of companies in turnaround and transition situations in the DACH regions. Since 2009, investment activities from Luxembourg have been managed by A-Private Equity AG, Luxembourg (hereinafter referred to as "A-PE-Lux"), while A-PE-AG advises A-PE-Lux and provides certain management support services to the portfolio companies. Only equity investments with operational management responsibility assumed by employees of A-PE-AG are made.
A-PE-AG has already set up an identical structure in the past and has carried out fifteen corporate transactions with a total volume of around EUR 250,000,000. This previous structure is in the process of being closed down, which is why the current structure was set up parallel to the existing structure for a new total volume of EUR 250,000,000. About twelve to fifteen transactions are also to be carried out via this structure.
The current transaction is the first by A-SICAV and the first transaction ever in Switzerland. So far, only companies from Germany and once from Austria have been included in the portfolio. It is also expected that no further or at most one additional Swiss transaction will be made.
In summary and simplified, the structure is as follows:
A-SICAV will have an investment volume of EUR 250,000,000, which - as in the previous structure - will be invested by international, exclusively institutional investors. These are financial institutions, pension funds and investment funds in Germany, France, Italy, USA, Finland and Switzerland on the one hand, and in offshore areas on the other. According to current plans, A-Luxco will make between eight and twelve investments in the sense of majority stakes in operating companies based in Germany, Austria and Switzerland.
The final structure can therefore be simplified as follows:
- What are the general principles and conditions for reimbursement between Luxco and CH-Holding?
- What are the conditions for granting the notification procedure?
- Who is the recipient of the services subject to withholding tax?
- What are the effects on the eligibility for reimbursement in the case of different potential beneficiaries?
- Can the notification procedure be applied?