News on the taxation of corporate restructuring (2022)

Case 1: Holding split

1. facts of the case

A. AG, which is held by Mr X, a resident of Switzerland, is a holding company with the following shareholdings:

• 20% of the capital of the foreign operating B. GmbH
• 60% of the voting rights in the domestic C. AG, a holding company which holds 20% of the capital of the foreign operating D. AG.
• 100% in E. AG, an inactive company (share capital: CHF 100,000; retained earnings: CHF 50,000; asset loan of CHF 150,000 to X).
• 100% in the domestic operating company F. AG. In addition to operating assets, this company still has distributable cash of CHF 2 million under commercial law.

The balance sheet of A. AG is as follows (in TCHF):

It is intended to spin off F. AG and sell it to a third party. The following procedure is chosen for this purpose:

Step 1: A. AG contributes F. AG to E. AG on 4.6.2022 as a contribution in kind with effect from 1.1.2022 (à fonds perdu contribution to the reserves of E. AG; no capital increase at E. AG). F. AG is recognised in the balance sheet of E. AG at the income tax value of CHF 2 million.

Step 2: E. AG is distributed as a dividend to X. on 15.6.2022.

Step 3: E. AG is sold on 17.6.2022 to the domestic Y. AG for CHF 10 million.

Question 2

• What tax consequences are associated with this procedure for Mr X. and for A. AG associated with this?

3. variant 1

• F. AG is not contributed to E. AG by means of a contribution in kind, but is sold against a loan at the profit tax value of CHF 2 million.

4. variant 2

• F. AG is incorporated into E. AG by means of a contribution in kind. However, after the contribution in kind, F. AG acquires from A. AG, before the distribution, a patent used by it for business purposes (i.e. necessary for business purposes from the point of view of F. AG) at a profit tax value of CHF 100,000 (market value: CHF 2 million).

5. variant 3

• On 29.6.2022, E. AG absorbs F. AG with effect from 1.1.2022 (variant: On 15.4.2023 with effect from 1.1.2023).

6. variant 4

• Same as the basic facts. On 15.3.2022, A. AG sells its shareholding in B. GmbH to a third party for CHF 15 million. A. AG now still holds the investment in C. AG (value: CHF 7 million).

7. variant 5

• On 15.4.2023, Y. AG absorbs E. AG.
• Does this have consequences for Mr X.?

Case 2: Employee shares and IPO

1. facts of the case

The shares in X., which was founded in 2018 as a start-up. AG are held by Jersey-based Y. Ltd. A private equity fund holds 80% of the shares in Y. Ltd is 80% owned by a private equity fund and 20% by the employees of X. AG hold 20%.

The employees only have common shares in Y. Ltd. which they could acquire at a formula value in 2019-2022. The PE fund holds 40% preference shares and 40% common shares in Y. Ltd.

With a view to an IPO, a UK resident Z. Ltd will be established and on 15 April 2022 all shares in Y. Ltd (Preference Shares and Common Shares) will be exchanged for Z Shares.

On 1 June 2022, Z. Ltd will be listed on the London Stock Exchange (LSE) (IPO).

Question 2

• What are the tax consequences of (i) the exchange of Y. shares for Z. shares, (ii) the IPO or (iii) the sale of Z shares after the IPO by the Swiss resident employees of X. AG?

Case 3: Conversion of an association into a corporation

1. facts of the case

An association X. domiciled in the Canton of Berne and registered in the Commercial Register was converted on 15.12.2021 (variant: 15.2.2022) into a corporation Y. AG on 15.12.2021 (variant: 15.2.2022).

Each of the 20 members of the association (natural persons) resident in Switzerland receives 50 Y-shares with a nominal value of CHF 100 each, free of charge. AG amounts to CHF 20 million.

Question 2

• What are the tax consequences for the members of the association?
• What would be the effects of a Ruling issued by the Canton of Berne, signed by the Canton of Berne on 15.12.2021 and received by the legal representative of the Association on 18.12.2021?
• To what extent can KERs be formed at Y. AG KERs can be formed?

Variant 3

• How would the case be assessed for beneficiaries domiciled in Switzerland if X. were a family foundation domiciled in the canton of Schwyz, which was converted (within the scope of a two-step conversion) into Y. AG?

Case 3: Conversion of an association into a corporation

1. facts of the case

An association X. domiciled in the Canton of Berne and registered in the Commercial Register was converted on 15.12.2021 (variant: 15.2.2022) into a corporation Y. AG on 15.12.2021 (variant: 15.2.2022).

Each of the 20 members of the association (natural persons) resident in Switzerland receives 50 Y-shares with a nominal value of CHF 100 each, free of charge. AG amounts to CHF 20 million.

Question 2

• What are the tax consequences for the members of the association?
• What would be the effects of a Ruling issued by the Canton of Berne, signed by the Canton of Berne on 15.12.2021 and received by the legal representative of the Association on 18.12.2021?
• To what extent can KERs be formed at Y. AG KERs can be formed?

Variant 3

• How would the case be assessed for beneficiaries domiciled in Switzerland if X. were a family foundation domiciled in the canton of Schwyz, which was converted (within the scope of a two-step conversion) into Y. AG?

Case 4: Contribution of an interest in business assets to a corporation

1. facts of the case

The sole proprietorship managed by X. holds 100% of the shares in Y. AG, an active company. The business managed by Y. AG has no relation to the activities of the sole proprietorship.

X. wants to contribute Y. AG to Z. AG, which X. holds in his private assets.

Question 2

• Can the transparency principle also be applied to partnerships and does the contribution of the shareholding constitute a transfer of a business pursuant to Art. 19 para. 1 lit. b DBG?

Case 5: Retroactive immigration merger

1. facts of the case

Luxembourg-based X. Sàrl merges with its Swiss-based parent Y. AG. The merger will be completed on 1.6.2022, based on the annual accounts as at 31.12.2021 with effect from 1.1.2022. After the absorption, X. Sàrl will have no permanent establishment and therefore no limited tax liability in Luxembourg.

The 2022 profit of Y. AG amounts to CHF 70 million (variant: CHF 10 million). Of this, CHF 15 million is attributable to the profit generated by X. Sàrl in the period from 1.1.2022 to 31.5.2022.

Question 2

• How much profit is taxed in Switzerland?

3. variant 1

• How would the case present itself if X. were a BVI resident company?

4. variant 2

• How would the case present itself if X. were a company domiciled in the canton of Berne which was absorbed by Y. domiciled in the canton of Zurich?