Current problems of taxation of public limited companies and shareholders

Case 1: Berni AG - Taxation of capital and profit on disposal of own shares

Facts

Berni AG acquired treasury shares amounting to 3% of the nominal share capital at the current market value of CHF 60 from its shareholder Peter Zogg in _1. In addition to Peter Zogg, Zogg AG is also a shareholder of Berni AG.

The 3% of shares correspond to a nominal value of the share capital of CHF 12. After the acquisition of these treasury shares, the balance sheet of Berni AG at the end of _1 is as follows:

Balance sheet of Berni AG as at 31.12._1

The enterprise value of Berni AG as at 31 December _0 is CHF 2,000.

Question 1

• Are the requirements under commercial law for the acquisition of these shares fulfilled?
• What is the taxable capital of Berni AG as at 31.12._1?

Question 2

• What are the tax consequences of this purchase of treasury shares for Peter Zogg if he holds the Berni AG shares as part of his private assets?
• Does this tax assessment change if Peter Zogg holds these shares as business assets of his sole proprietorship?
• What are the tax consequences for Zogg AG if Berni AG has acquired the treasury shares from Zogg AG?

Addition to the facts A

Berni AG's business activity expands satisfactorily and therefore the market value of Berni AG also rises to CHF 3,000. As a result, Berni AG sells these treasury shares to a new shareholder in _3 at a price of CHF 90 and subsequently makes a profit on this sale of CHF 30.

Question 3

• How is this profit from the sale of treasury shares taxed at Berni AG?

Addition to the facts B

Berni AG would like to transfer these treasury shares to its new managing director Emil Kissling in _3. The market value of Berni AG is still CHF 3'000 and Berni AG transfers these shares to Emil Kissling at nominal value (variant at market value, but with a mark-up, as employee shares have a ten-year blocking period).

Question 4

• What are the tax consequences for Berni AG and for Emil Kissling?
• Variant: Does this approach change if these shares are designated as employee shares and are subject to a lock-up period of 10 years? In this case, these shares are issued with a discount of 44.161% on the market value of CHF 90 or CHF 39.75 in accordance with Art. 17b para. 2 DBG. The issue price is therefore CHF 50.25.

Addition to the facts C

The shareholders of Berni AG and Emil Kissling come to the conclusion, independently of the preceding facts, that Emil Kissling can acquire 10% of Berni AG in _3, which Berni AG has previously acquired from Peter Zogg. Since Emil Kissling would like to acquire the shares from Peter Zogg in the longer term, it is decided, in the interest of optimal taxation of all parties involved, that Berni AG will acquire a further 10% of its own shares from its shareholders on an ongoing basis and then sell them on to Emil Kissling as employee shares at a price that is around 44% below the market value, subject to a ten-year lock-up period.

Question 5

• What tax consequences can Berni AG expect if it acquires 10% of its own shares from Peter Zogg at market value in _5 and sells them to Emil Kissling with a mark-up for employee shares and subsequently acquires a further 10% of shares from Peter Zogg and sells them on to Emil Kissling under the provisions for employee shares.

Addition to the facts D

Berni AG does not find a buyer for the treasury shares and so they are still recognised in Berni AG's balance sheet in _06 at the acquisition price of CHF 60.

Question 6

• What are the tax consequences after these six years for both Berni AG and Peter Zogg?

Supplementary facts E

In _09 Berni AG can sell its own shares to a third party at a fair value of CHF 80. The nominal value of these shares is still CHF 12.

Question 7

• What are the tax consequences for Berni AG from this sale of this shareholding at a price of CHF 80.
• Would this tax consideration change if these shares only had a market value of CHF 40 and were also sold at this price?

Case 2: Debt waiver / debt allowance

Facts

X AG is a company domiciled in Switzerland and operates a hotel. X AG is 100% owned by Y AG, which in turn is 100% owned by Z AG, both domiciled in Switzerland.

Due to the Corona pandemic, the financial situation of X AG deteriorated during the 2020 business year. The balance sheet of X AG as at 31 December 2020 is as follows.

Balance sheet as at 31.12.2020 of X AG

X AG is to be restructured and the underbalance eliminated. For this purpose, the parent company Y AG waives its loan to X AG in the amount of CHF 8 million.

Question

How should Y AG's debt waiver be treated for tax purposes?

Variant 1

Y AG makes a receivables contribution of CHF 8 million to X AG.

Question

How should the receivables allowance from Y AG be treated for tax purposes?

variant 2

Y AG makes a cash contribution of CHF 8 million to X AG. The latter uses the funds to repay the shareholder loan in this amount to Y AG.

Question

How should this procedure be treated for tax purposes?

Variant 3

X AG increases the share capital by CHF 1,000 with a premium of CHF 8 million. The payment is made by means of a cash contribution of CHF 1,000 and offsetting the existing shareholder loan in the amount of CHF 8 million.

Question

How should this procedure be treated for tax purposes?

Variant 4

The grandparent company Z AG grants the loan to X AG and makes the cash or receivable contribution of CHF 8 million to X AG.

Question

How should the receivables allowance from the grandparent company Z AG be treated for tax purposes?

Case 3: Frelo Group - restructuring by means of transfer of companies

Facts (based on BGer 2C_834/2011)

Fredi Looser is the sole shareholder of the Frelo Group. The structure of the company can be seen in the overview below.

Research AG was founded in _3 and does order-related research for the whole group. For its part, Produktions AG has been in existence for over 20 years and is active in the production of machines.

Unfortunately, the research carried out by Research AG was not very successful and led to high losses for Research AG. In a first phase, the share capital was increased by Fredi Looser in _5 for the restructuring of the company. In a further step, the successful Produktions AG granted Research AG a loan of CHF 661,000 in _5 so that the liquidity of the company could be maintained. At the end of _6, Research AG is over-indebted.

Other data should be noted in this context:

Question 1

How should the granting of the loan from Produktions AG to Research AG be assessed from a tax point of view and what tax consequences can be expected from the write-off of this loan?

Question 2

How should the transfer of Research AG to Produktions AG for CHF 1 be assessed from a tax perspective?

Question 3

From a tax perspective, how should the subsidy from Produktions AG to Research AG be assessed?

Question 4

Can the losses transferred from Research AG to Produktions AG within the framework of the subsidiary absorption, which could not yet be offset against profits, be offset against the profits of Produktions AG in the future?

Addition to the facts (based on BGer 2C_731/2019)

Contrary to the initial situation, Produktions AG is now overindebted and has ceased its activities. With the share purchase agreement of 13 July 10 and 25 January 12, the over-indebted Produktions AG acquires the successful Research AG at market value. On 25 June 12, Produktions AG absorbs Research AG with retroactive effect from 1 January 12.

In connection with the reorganisation of Produktions AG, Frelo Holding AG requested in May 12 that the debt waiver of CHF 700,000 made by it in favour of Produktions AG be qualified as a non-genuine reorganisation gain.

Question 5

How should the waiver of receivables in the amount of CHF 700,000 be assessed from a tax perspective at Frelo Holding AG and Produktions AG?

Question 6

How should any merger loss resulting from this merger be assessed from a tax perspective?

Question 7

Which losses of Produktions AG can still be offset against future profits of Research AG within the framework of the seven-year loss offset option?

Case 4: Joint liability of the board of directors

Facts A

On 25 March 2004, A sells to X all shares in B AG as well as a claim against the company. On 30 March 2004, X is entered in the commercial register as the sole director of the company.

The company B AG is the owner of fifteen parcels of land with twelve residential buildings. According to the agreement between A and X, A has a right of first refusal on four specific plots until 31 July 2004.

Between 25 March 2004 and 20 October 2004, B AG sold thirteen of the fifteen properties.

On 20 October 2004, X sells all shares in B AG back to A. On the same day X resigns as a member of the board of directors. The extraordinary general meeting takes note of X's resignation and grants him discharge with immediate effect.

On 4 November 2009, the administrative court orders the dissolution and liquidation of B. AG. The bankruptcy proceedings are discontinued on 24 November 2009 due to lack of assets, and the company is deleted from the commercial register on 14 June 2010.

On 25 August 2009, the Cantonal Tax Administration holds X liable for the taxes on profits of B AG. According to the tax administration, the tax claims amount to CHF 3,846,832.70 with a liquidation result of CHF 14,508,397 including offsetting as at 31 December 2004.

Question

Can the Cantonal Tax Administration hold X liable for the profit taxes owed by B AG? If so, under what conditions?

Situation B

X AG provides services in the field of marketing and advertising. A is the sole director with sole signature.

Until 2005, X AG receives substantial income from consultancy services. In 2006, the company only receives a small amount of income and from 2007 onwards, none. Accordingly, the expenses are also reduced in these years. No more personnel expenses are recorded for the 2006 business year.

In an audit in March 2006 for the years 2001 to 2005, the FTA identifies expenses that are not justified on business grounds, which qualify as pecuniary benefits for withholding tax. After an objection by the company, the FTA sets the withholding tax claim at CHF 780,837 on 8 February 2010. The decision becomes legally binding.

On 31 August 2010, bankruptcy proceedings are opened against the company and are discontinued on 16 November 2010 due to a lack of assets. The withholding tax claim is not settled by the company. The company is deleted from the commercial register on 1 March 2011.

In a decision dated 30 September 2011, the FTA declared A jointly and severally liable for the withholding tax owed by X AG and obliged him to pay CHF 780,837 plus interest on arrears. In its objection decision of 5 October 2012, the FTA reduced A's joint and several liability for the company's withholding tax to CHF 172,212.50 based on the balance sheet as at 31 December 2005.

Question

Can the FTA hold A liable for the withholding tax owed by X AG? If so, under what conditions?

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