Taxation of investments in the context of estate planning - national and international

Case 1

Task

Mr. Kaufmann (German citizen), who founded a fashion chain in Germany, moved to Zug on January 1, 2012. He died on 31 October 2016. Mr Kaufmann was unmarried at the time of his death and had two descendants from his first marriage: a son living in Frankfurt a.M. and a daughter living in Paris. Both children are German citizens. His assets consist mainly of the partner's shares in the fashion chain he founded and which is based in Germany (estimated market value according to the last financial statements: CHF 10 million), as well as a property in Zug (cadastral value: CHF 1.7 million) and the shares in a real estate company in St. Kitts & Nevis (market value: CHF 800,000). A mortgage of CHF 500,000 is encumbering the property in Zug.

1. Who has the right of taxation for which assets and is therefore allowed to levy inheritance tax?
2. Do the tax evasion.

Variant 1

To what extent would the initial situation change if Mr Kaufmann had died on 1 April 2017?

Taxation in Switzerland: CHF 2 million at the rate of CHF 12 million

Case 2

Task

Steven Candy built up the Candy Group, which grew out of the USA into a globally active confectionery producer. Steven already retired from management around ten years ago when the Candy Group was listed on the US stock exchange and he thus sold most of his stake (with the exception of a 10% block of shares). Following this exit, he moved his residence to Switzerland. He has lived for many years in the municipality of Cologny in the canton of Geneva.

Steven Candy is a US citizen and married to Nancy, also a US citizen. In addition to his shareholding, he owns real estate in Chicago and the British Virgin Islands (which he holds through a real estate company) and bank accounts in Switzerland, the United Kingdom and the United States. He generates foreign income of around CHF 10 to 15 million per year, about half of which is in connection with dividends from the Candy Group with its top holding company in Bermuda. Steven is subject to lump-sum taxation in Switzerland.

Now Steven Candy dies at the Cantonal Hospital in Geneva. Steven Candy leaves behind, besides his second wife Nancy, a daughter from his first marriage, who lives in Chicago.

1. What are the consequences of death on inheritance tax?
2. What effects does the lump sum taxation have on any inheritance tax?
3. What reporting will the banks in the USA, Great Britain and Switzerland do?

Case 3

Task

Mrs J. died on 29 May 2016, aged 70. Mrs. J. was a Swiss citizen, never held another nationality and lived in Switzerland all her life. She was never the owner of a foreign residence. Her husband, also a Swiss citizen, died in 1991.
The couple had two joint children as sole and legal heirs, namely a son resident in Switzerland and a daughter resident in Northern Germany who is married to a German citizen. The daughter and her husband have two joint children who are German citizens. The daughter has no German nationality but is a Swiss citizen. Mrs. J. has not left a last will and testament. The estate of Mrs. J. consists of liquid assets (bank accounts) at a Swiss bank and a property located in the canton of Bern.

Variant 1

Under which substantive law is the inheritance settled?

variant 2

Which state has the right of taxation with regard to inheritance tax?

Variant 3

What, if any, are the special features of the procedure?

Case 4

Task

John Sutter, 75, is a Swiss citizen and has been living in Hong Kong for several years with his younger wife, also a Swiss citizen. Mr. Sutter has an adult daughter who lives in Switzerland. Before moving to Hong Kong, John Sutter lived in Florida for over 10 years. From this time he and his wife still have a US Green Card. Mr. Sutter plans to retire from active business life and (together with his wife) move to either Switzerland or the USA. For this purpose, he plans to acquire real estate in Switzerland or the USA, depending on his future choice of residence.

Currently, John Sutter owns an apartment in Hong Kong and substantial banking assets in Hong Kong and Switzerland. The entire assets belong to Mr. Sutter.

Variant 1

What is the inheritance tax situation for Mr. and Mrs. Sutter if they maintain their residence in Hong Kong?

variant 2

What changes when Mr. and Mrs. Sutter move to Switzerland?

Variant 3

What changes when Mr. and Mrs. Sutter move to the USA? Is there room for improvement due to the recent tax reform in the USA?

Case 5

Task

Mr Patriarchos, sole shareholder of Patriarchos AG, which is active in greenhouse technology in Switzerland, will celebrate his 65th birthday in 2020. In view of his imminent withdrawal from the business, he would like to transfer Patriarchos AG to his son Vasili, who is also active in the business. At the same time, he would like to have sufficient financial resources to cover his living expenses until his death. Mr. Patriarchos and Vasili therefore agree on the following procedure:

• Vasili establishes its own company based in Switzerland (NewCo), which is 100% controlled by Vasili.
• Mr Patriarchos will sell to NewCo all shares in Patriarchos AG at market value, leaving the purchase price as a loan.
• Both brothers conclude an inheritance contract with the father. In return, they each receive 1/3 of the loan claim against NewCo, while at the same time making a declaration of subordination to their father's loan claim.
• In accordance with the loan agreement, NewCo will repay the remaining debt in instalments over the coming years.

Both Mr. Patriarchos and son Vasili are married and live in Rüschlikon (Canton Zurich). Vasili has two underage children and a brother, who lives in London and does not work in the family business.

• What is to be considered in terms of tax law?
• What is to be considered in terms of civil law?

Variant 1

Would there be any change in the result after the entry into force of tax bill 17?

variant 2

Mr. Patriarchos had already handed over the management of the company to his son Vasili some time ago and moved with his wife to London, where he is taxed as a non-dom. Patriarchos AG now has considerable retained earnings which are not required for its business activities. In particular, the funds not required for operations amount to CHF 5 million.

Mr. Patriarchos will now sell his son the shares in Patriarchos AG on May 12, 2017, for a price of CHF 10 million (fair value approximately CHF 50 million), with Vasili paying half by the end of 2017 and receiving the other half as an interest-free loan. At the Annual General Meeting, Vasili decides on a dividend of CHF 5 million, whereby he will pay the withholding tax of CHF 1.75 million to the FTA.

Can Vasili claim a refund of the withholding tax of CHF 1.75 million with his 2017 tax return?