Asset deal versus share deal for corporations

Situation 1

Rolf Klein AG is an operating company based in Olten. It is active worldwide in the development and production of electrotechnical connecting material for railway technology. Rolf Klein AG employs around 100 people in Olten for this purpose and generates total sales of around CHF 42 million; total payroll amounts to approximately CHF 12 million.

Rolf Klein AG has a share capital of CHF 1,000,000, divided into 500 registered shares of CHF 1,000 each and 5,000 registered shares (voting shares) of CHF 100 each. All shares are currently held by Mr. Rolf Klein, domiciled in Egerkingen, in his private assets.

The provisional balance sheet as at 31 December 2016 is simplified as follows (reduced by a factor of 1,000):

According to current projections, Rolf Klein AG will have cash and cash equivalents of approximately CHF 8.4 million (before dividend payments) at the transaction date at the end of November. The level of receivables and liabilities should remain more or less the same.

Rolf Klein AG holds the following investments, each of which acts purely as a distribution company for Rolf Klein AG:

1. Rolf Klein S.r.l., based in Como, Italy (99% holding), the provisional balance sheet is simplified as follows (in EUR and reduced by a factor of 1,000):

According to current planning, Rolf Klein S.r.l. will have liquid funds of approximately EUR 50,000 at its disposal as at the end of November.

2. Rolf Klein UK Ltd. with registered office in Cheltenham, Great Britain, the provisional balance sheet as at 31 December 2016 is presented in simplified form as follows (in GBP and reduced by a factor of 1,000):

Rolf Klein UK Ltd. will soon pay a dividend to Rolf Klein AG in the amount of GBP 434,000 (this dividend is already included in the planned liquidity portfolio of Rolf Klein AG as at the end of November). Apart from this, no significant deviation in the liquidity portfolio as at the end of November is expected.

3. 50% stake in Klein & Gross AG, based in Altenrhein. This is a joint venture with a manufacturer of railway wagons. Financial statements of Klein & Gross AG have not yet been prepared.

The current corporate structure is as follows:

Mr. Rolf Klein plans to sell his shares in Rolf Klein AG. The buyer is expected to be a Swiss subsidiary of a major German group. The purchase price is expected to be CHF 100,000,000.

Mr Rolf Klein would like to sell the investment with economic effect as of 31 December 2016. This means that the purchase price was determined on the basis of the balance sheet as at 31 December 2016 and the business development to date in 2017 is not included in the valuation.

Questions on facts 1

You are a tax consultant for Rolf Klein. What are the tax law hurdles in this situation?

What would change if the buyer was a US company?

Situation 2

Rapperswil Assurance AG ("RA AG"), headquartered in Rapperswil, is wholly owned by a Swiss insurance group. RA AG operates the business with Life Insurance Wrappers. With these products, a securities portfolio is encapsulated with a life insurance contract. The insurance company and no longer the bank client acts as the beneficial owner vis-à-vis the bank. The product is particularly popular in the UK, where it can be used as an alternative to trusts and foundations.

As a result of the Swiss banks' white money strategy, many bank clients who had not disclosed their assets to the tax authorities used this product to temporarily part with their untaxed assets.

The Swiss insurance group wants to withdraw from the life insurance wrapper business and is therefore trying to find a buyer for the shares of RA AG.

RA AG shows the following provisional balance sheet:

The Liechtenstein-based Kaiser & König AG is interested in the purchase, but only under the condition that an asset deal takes place, because it does not want to take over the "legacy" of RA AG. In particular, Kaiser & König AG does not want to take over US clients whose assets account for about 10% of all assets packed in wrappers.

Questions on facts 2

You are a tax consultant for the insurance company. What are the tax law hurdles in this situation?

Situation 3

Mr. Gross (65 years old) holds all shares in Gross Medtech AG, which is active in the development and sale of medical consumables in the medical sector. The participation is held as part of Mr. Gross' private assets.

He sells the stake for CHF 5,000,000 to Erben Holding AG, a holding company founded by his son for the sole purpose of this purchase. The market value of the investment in Gross Medtech AG is at least CHF 9,000,000. Mr. Gross has the sales proceeds of CHF 5,000,000 credited to him as an interest-bearing loan and demands a security deposit on the shares of Erben Holding AG and has a lien established on the operating property. The loan has a fixed term of 7 years and bears interest at 4% p.a. It can be assumed that these loan conditions correspond to the third-party comparison.

Gross Medtech AG has so far regularly reported a profit (EBIT) of around CHF 750,000.

The share capital of Erben Holding AG amounts to CHF 100,000 and it has no reserves.

Questions on the facts of the case 3

What are the tax problems?

Situation 4

On 1 March 2014, Mr. Peter Kuhn sold 100% of Kuhn Logistics AG from private assets to a holding company for CHF 8,000,000. The sale took economic effect as of 1 January 2014. This means that the purchase price was determined based on the balance sheet as of 31 December 2013 and the business performance to date in 2014 was not included in the valuation. The purchaser is entitled to dividends for the financial year 2013.

The reserves distributable under commercial law as at 31 December 2013 were CHF 900,000; the funds not required for operations were at least as high.

Kuhn Logistics AG had previously paid a dividend of CHF 300,000 each. This dividend policy will not change after the sale.

Kuhn Logistics AG generated the following corporate profits after the sale and distributed the following dividends: