Carve-outs and real estate transactions

Case 1: Transfer of real estate

1. basic facts

The purpose of the RE Construction Group is to develop construction projects. Some of the buildings constructed are not sold after construction (although this is the minority of developed properties), but are held as part of the investment strategy. The properties are managed by a third-party provider. Mr. B is the owner of the RE Construction Group. For strategic reasons, it is planned to separate the four investment properties in the Canton of Zurich from the general contractor and transfer them to Immo AG. The structure is as follows:

The investment properties are developed plots with 80 apartments. The annual rental income amounts to CHF 2.2 million (net) and the annual administrative expenses to CHF 80,000.

Questions

1. Can the developed properties be transferred to Immo AG on a tax-neutral basis?
2. Does your qualification change if two of the four buildings are not yet completed at the time of the transfer or do not yet have tenants? Assume that the other two properties are also only partially let and that the figures in the facts are therefore only target figures. In actual fact, only CHF 0.3 million in annual rental income is received. The management has so far been provided on a transitional basis by RE Construction AG itself and remains within manageable limits.

2. variant 1

The purpose of the RE Construction Group is the development of construction projects. Due to favorable market conditions, RE Construction AG was able to acquire four plots of building land in the canton of Zurich in the near past. It was decided not to build on the plots and to hold them as a capital investment. Due to estate considerations, the plots of land are not to remain with RE Construction AG but are to be transferred to a new Immo AG.

The plots generate rental income ofCHF 200,000 annually through partial use as a parking lot. The annual administrative expenses amount to CHF 20,000.

Questions

1. Can the building plots be transferred to Immo AG in a tax-neutral manner?
2. Does your qualification change if there is already an approved construction project for the development of the plots, according to which it is assumed that CHF 18 million in rental income will be generated after completion?

3. variant 2

The Production Group is an operating group active in the development and marketing of medical technology. The head office of the Production Group is located in Wädenswil (headquarters of Production HoldCo and Production Sales AG). The office building is owned by Production AG. Production takes place in Dübendorf in Production AG's own production building. The shareholder of the Production Group is Mr. P, father of a daughter and a son. The daughter is already heavily involved in the operational management of the Production Group. The son is a winemaker and does not wish to be involved in the Production Group in the future. As part of the estate planning, the buildings owned by the Production Group are to be transferred to Immo AG. The structure is as follows.

After the transfer, Immo AG will lease the business premises to Production HoldCo, Production Sales and Production AG (no classic sales and lease back). Long-term rental agreements are concluded. The rent is payable on June 30 of each year. The expenses incurred by Immo AG are kept to an extremely manageable level.

There are two tenancy agreements. The annual rental income amounts to CHF 2.1 million (net) and the annual administrative expenses to CHF 20,000.

Questions

1. Can the Production Group's buildings be transferred to Immo AG on a tax-neutral basis?
2. Are there any restrictions in the case of a tax-neutral (assumption: operating requirement also fulfilled in the case of transfer to Immo AG) holding company demerger? What needs to be considered with regard to real estate gains tax and what would have to be taken into account in the share sale agreement in the event of a possible sale of Immo HoldCo?

Case 2: Real estate asset swaps

1. basic facts

Pension fund A is the owner of five properties (all residential properties in Switzerland).

Pension fund A would like to transfer all properties to investment foundation B. This is due to economic considerations such as diversification, deeper knowledge of regional markets, more professional real estate management, cost reduction due to usable synergies, improved performance.

The compensation owed for the transfer will be settled by the acquiring Investment Foundation B by issuing no-par value and irrevocable claims (book claim) to the "Swiss Real Estate" investment group.

Investment Foundation B already owns properties with a market value of CHF 1.75 billion. All of them are in the "Real Estate Switzerland" investment group.

Investment Foundation B is not leveraged.

Following the transfer of the properties to Investment Foundation B, the structure is as follows:

Question

What are the tax consequences of the transfer of the properties to Investment Foundation B by Pension Fund A?

2. alternative 1: two investment groups

In comparison to the basic situation, Investment Foundation B maintains two different investment groups. The "Residential real estate Switzerland" investment group currently comprises properties with a market value of CHF 0.75 billion. The "Commercial real estate Switzerland" investment group currently comprises properties with a market value of CHF 1.00 billion. The properties of Pension Fund A are settled in exchange for the issue of no-par value and irrevocable claims (book claim) to the "Swiss residential real estate" investment group.

Question

What are the tax consequences of the transfer of the properties to the Swiss residential property investment group of Investment Foundation B by Pension Fund A?

Alternative 3:Losses on disposal

Facts as per alternative 1. However, the market values of the properties BS 2 and ZG 1 have fallen.

Question

Is there potential for optimization compared to alternative 1?

Case 3: Direct or indirect sales of real estate companies (real estate share deals)

1. facts of the case

Group A is an operationally active group. The real estate required for operations (in the cantons of ZH, LU, SO, GR and BL) is owned by Group real estate companies (Immo1 AG and Immo2 AG). All companies are based in the canton of Solothurn. The structure is as follows:

Questions

1. To raise liquidity, HoldCo sells all shares in Immo1 AG and OpCo sells all shares in Immo2 AG. The tenancies remain in place. What tax consequences (property gains tax, transfer tax and profit tax) does this have with regard to the properties?
2. The shares in Immo1 AG and Immo2 AG will not be sold. Instead, the shareholder sells all the shares in HoldCo and thus indirectly also Immo1 AG and Immo2 AG or the properties. Are there different tax consequences in relation to the properties than in the case of a direct sale of the shares in Immo1 AG or Immo2 AG?

Case 4: Violations of blocking periods

1. basic facts

The Relax Group is currently active in the wellness and hotel sector. Originally, the Relax Group intended to invest in hotels located as close as possible to thermal baths and other wellness facilities (hereinafter "SPAs"). When the SPAs came up for sale, the Relax Group decided to acquire them. Due to the increased demand, the Relax Group decided to expand the hotel capacity and close the SPAs to the public and make them accessible only to hotel guests. To this end, the SPAs (buildings and operations) were transferred to the respective hotel companies (Relax1 AG, Relax2 AG and Relax3 AG). The transfer was tax-neutral. Three years later, the SPA buildings were sold to an investor (third party) to raise liquidity (no replacement was purchased). This can be illustrated graphically as follows:

The real estate values of the SPA properties at the time of transfer to the hotel companies are as follows:

The real estate values of the SPA properties at the time of sale to the third party are as follows (tax-neutral transfer to hotel companies taken into account):

Questions

1. What are the tax consequences for the Relax TopCo?
2. What are the property transfer tax consequences for Relax1 AG in the canton of Lucerne?
3. What are the property gains and transfer tax consequences for Relax2 AG in the Canton of Berne?
4. What are the transfer tax consequences for Relax3 AG in the canton of Vaud?

2. variant 1: quasi-merger

Immo1 AG is the owner of two large properties, each built over with several apartment buildings. Their yield is no longer sufficient and the real estate and administrative expenses have increased significantly in recent years. The shareholders decide to sell the participation rights in Immo1 AG from their private assets.

Immo HoldCo, which is listed on the secondary stock exchange, shows interest and proposes a quasi-merger. The sale price is set at CHF 100 million, with CHF 50 million going to the shareholders in cash and CHF 50 million being paid in newly created shares. The new share capital to be created amounts to around 5% of the total share capital of Immo HoldCo. The requirements for a quasi-merger (KS ESTV 5a para. 4.1.7.1) are met. The structure is as follows:

Shortly after the quasi-merger, 80% of the new shareholders sell their shares in Immo HoldCo via the stock exchange.

Questions

1. Is there also a tax-neutral quasi-merger for property tax purposes?
2. Do the transactions described above have property tax consequences?

Case 5: Determination of revenue

1. facts of the case

Seller A AG, domiciled in Zurich, holds 100% of the shares in Immo AG (also domiciled in Zurich). Immo AG holds one property in the canton of Lucerne and one property in the canton of Zurich. All shares in Immo AG are sold to the buyer B AG. This can be illustrated graphically as follows:

The purchase price of the shares in Immo AG is CHF 9,140,000. The following values were taken into account when determining the purchase price.

Questions

1. How is the transfer value of the Zurich property determined for Zurich property gains tax purposes?
2. How is the transfer value of the Lucerne property determined for the Lucerne transfer tax?

Case 6: Integration of real estate

1. facts of the case

Pension Fund A, which has the legal form of a foundation, acquired 100% of the shares in Immo AG (both domiciled in Zurich). At the time of acquisition of the shares by Pension Fund A, the annual financial statements of Immo AG show properties with a book value of CHF 400 million (market value CHF 700 million; otherwise no hidden reserves). Equity consists of share capital and capital contribution reserves of CHF 100 million each. Immo AG is affected by the cash trap problem, which is why there are no retained earnings but cash and cash equivalents of CHF 100 million. Unlike Immo AG, Pension Fund A is exempt from profit tax as an occupational pension fund. In order to avoid unnecessary tax expenses, the properties are now to be transferred from the taxable area of Immo AG to the tax-exempt area of Pension Fund A.

The realization of the tax savings was already known at the time of the acquisition. It was therefore already intended at that time to transfer the properties from Immo AG to Pension Fund A as soon as possible.

Questions

1. What tax consequences are triggered by the transfer if the shares in Immo AG were acquired by a legal entity domiciled in the Canton of Zurich at the time?
2. What tax consequences are triggered by the transfer if the shares in Immo AG were acquired by an individual resident in Copenhagen (Denmark) at the time?

Case 7: Economic change of ownership in an international context

1. facts of the case

TopCo, based in Denmark, holds all the shares in Immo AG, Zurich. Immo AG is the owner of a property located in the city of Zurich. The property was acquired by Immo AG in a taxable transaction in 2010. The investment costs amount to CHF 50 million and the current market value of the property is CHF 100 million. The shares in Immo AG are now being sold to a third party.

TopCo is an operating company with sufficient substance in Denmark for the purposes of Swiss real estate gains tax.

Question

Is property gains tax levied in the Canton of Zurich and on which capital gains?

Case 8: Security measure

1. facts of the case

Immo1 AG is the owner of a property (MFH) in the canton of Zurich. Immo2 AG intends to acquire the property.

Questions

1. What does the acquiring Immo AG need to secure on the basis of the statutory lien and how should it proceed? How does the lien procedure work?
2. What special features need to be taken into account if Immo1 AG wishes to make use of § 224a StG-ZH (offsetting of business losses against real estate gains tax) due to an operating loss?
3. How should the situation be assessed in comparison to the initial situation if the property is located in the canton of Lucerne instead of the canton of Zurich?