Stefan Oesterhelt
David Tschan
Intragroup financing / Price adjustments / Transfer pricing and audits / Restructuring / Other current survey issues (part 1 and 2)
2-part workshop by Stefan Oesterhelt and David Tschan on the occasion of the ISIS) seminar on October 21, 2024 entitled "Intragroup financing / Price adjustments / Transfer pricing and audits / Restructurings / Other current survey issues" (Part 1 and 2)
Case 1: Formation of KER for revaluations
1. facts of the case
TopCo (US) contributes its operating OpCo (NL) to its subsidiary HoldCo (CH) on March 1, 2023 by means of a contribution in kind (against KER). The contribution is made at a conservatively estimated value of CHF 100 million. The final valuation report is available at the end of August 2023; according to a DCF valuation, the value of OpCo is CHF 140 million. The investment will be revalued by CHF 40 million in September 2023 (variant: in April 2024).
Following approval of the 2023 annual financial statements by the Annual General Meeting, KER of CHF 140 million will be claimed in May 2024 by submitting Form 170.
Questions
- To what extent can the CERs be confirmed by the FTA?
- Are there alternatives to the chosen approach?
- What would be the tax consequences with regard to the levying of withholding tax if the value of the OpCo were only accepted by the FTA in the amount of CHF 80 million?
- What are the withholding tax consequences of a liquidation of OpCo in 2026?
Case 2: Creation of KER for price adjustments
1. facts of the case
On May 30, 2021, TopCo acquires TargetCo from the independent XCo at a price of CHF 100 million plus an earn-out payment of a maximum of CHF 40 million after three years. On August 15, 2021, TopCo contributes the newly acquired TargetCo to the KER of its subsidiary HoldCo as part of a contribution in kind at a value of CHF 100 million.
Following approval of the 2021 annual financial statements, HoldCo will apply for a KER of CHF 100 million by submitting Form 170.
On May 30, 2024, TopCo will make the earn-out payment of CHF 40 million that has become due depending on the business results.
Following approval of the 2024 annual financial statements, HoldCo will apply for an additional KER of CHF 40 million by submitting Form 170.
Option: TopCo makes a contribution of CHF 100 million to the KER of HoldCo in the amount of the purchase price, which in turn acquires TargetCo from XCo on May 30, 2021. TopCo assumes the debt obligation of HoldCo on May 30, 2024 and makes the earn-out payment of CHF 40 million to XCo that has fallen due.
Questions
- To what extent can CERs be confirmed?
- Are there alternatives to the chosen approach?
- Variant: to what extent can KER be confirmed?
- Variant: what are the withholding tax consequences of a liquidation of TargetCo in 2026?
Case 3: Division
1. facts of the case
X., which is held by X. AG has two establishments, the A establishment and the B establishment.
It is intended to spin off the B business as part of a demerger under the old law.
X. AG has a share capital of CHF 100,000.
Question
- How can the demerger be structured without incurring withholding tax consequences for X. due to nominal value gains?
Case 4: Debt push down
1. facts of the case
On September 15, 2024, a private equity fund acquires the domestic company X. AG (AK: CHF 1 million; no KER) via the acquisition company Y. AG (AK: CHF 1 million) for CHF 100 million from a domestic seller. Y. AG is held by Z. Sàrl, which is domiciled in Luxembourg.
Y. AG receives a grant of CHF 30 million from the fund as well as a loan of CHF 40 million bearing interest at 6% p.a.
Z. Sàrl takes out an interest-bearing loan of CHF 30 million at 6% p.a., which is syndicated to 12 debt funds.
Z. Sàrl provides the funds raised to X. AG via a shareholder loan of CHF 30 million bearing interest at 6% per annum.
On December 10, 2024, X. AG is absorbed by Y. AG is absorbed.
Questions
- What withholding tax consequences are associated with the absorption of X. AG be absorbed?
- What are the withholding tax consequences of the interest payments of X. AG under the shareholder loans?
Case 5: Interest rate adjustment on intra-group financing
1. facts of the case
The domestic X. AG received an open-ended loan of USD 100 million on June 30, 2022 from its sister company Y. BV an open-ended loan of USD 100 million, which bears interest at 2.75% p.a.. Interest is due on June 30 of each year.
On June 10, 2024, the contract between X. AG and Y. AG was amended and the interest rate was increased to 4.75% with effect from July 1, 2025 (to take account of the maximum interest rate in accordance with the FTA circular dated January 30, 2024).
On the USD loans granted by third parties, X. AG must pay an average of 3% p.a. for the 2024/2025 interest period.
Question
- What are the withholding tax consequences of the contract amendment of June 10, 2024?
Case 6: Third-party settlement for shareholder loans
1. facts of the case
The domestic X. AG has 10 shareholders who each hold a 10% stake in X. AG each. Since it urgently needs liquidity (and no bank wants to lend it money), it asks its shareholders for loans.
4 shareholders (variant: 6 shareholders) are prepared to grant X. AG a loan of CHF 1 million each on June 30, 2024 with a term of 2 years, which bears interest at 12% p.a. (final maturity). X. AG accepts these conditions and concludes loan agreements, which are approved at an Extraordinary General Meeting of X. AG with a majority of 70%.
X. AG has no debt capital outstanding with third parties.
Question
- Is there a pecuniary benefit within the meaning of Art. 4 para. 1 lit. b VStG?
Case 7: Own shares in the event of immigration
1. facts of the case
The foreign-domiciled X. Ltd relocates its registered office to Switzerland. At the time of the transfer, it holds 5% (variant: 15%) of its own shares (which was permissible under foreign law).
Questions
- Consequences with regard to the six-year period pursuant to Art. 4a para. 2 VStG?
- Consequences with regard to the 10% rule pursuant to Art. 4a para. 1 VStG in conjunction with Art. 656 CO? Art. 659 OR?
Case 8: Own shares in the event of emigration
1. facts of the case
X AG (share capital: CHF 10 million) moves its registered office to Luxembourg. At the time of the relocation, 90% of the shares are held by Y BV, which is domiciled in the Netherlands; it holds 10% of its own shares, which it bought back three years earlier from its minority shareholder M (domiciled in Monaco) for CHF 20 million. The net asset value of X AG (taking into account hidden reserves) amounted to CHF 200 million at the time of the transfer of the registered office.
Question
- Consequences with regard to withholding tax?
Case 9: Treasury shares upon conversion into new share classes
1. facts of the case
The operating X AG has a share capital of CHF 500,000; the shares are held by the following parties as at January 1, 2020:
- A (co-founder): 20%
- B (co-founder): 20%
- C (co-founder): 20%
- D, E, F and G: 10% each (employees)
Co-founder A wants to reduce his stake and sells 10% to X AG on March 1, 2020 at a market value of CHF 1 million.
On 30 May 2023, the AGM decides to create different share classes and to increase the share capital by CHF 50,000 in order to involve additional employees. Specifically, the existing shares issued will be converted into "A shares", which entitle the holder to a corresponding share of the existing reserves. The newly created shares and treasury shares now qualify as B shares, which entitle the holder to a share of the reserves created from 2024.
The newly created shares and treasury shares will be sold to various employees at the end of 2023 at a total market value of CHF 1 million.
Questions
- Consequences with regard to withholding tax?
- If yes, who qualifies as a beneficiary
Case 10: Creation of KER for NW reduction with treasury shares
1. facts of the case
The listed company X AG has a share capital of CHF 100 million; as at December 31, 2023, it holds treasury shares amounting to 10%, which it has purchased on the stock exchange over the past four years at a price of CHF 80 million. According to the AGM resolution, the nominal value is to be reduced to CHF 1.00 as at January 1, 2024. The reduction in par value totaling CHF 90 million is not to be paid out to the shareholders, but used to create KER.
Question
- To what extent can the CERs be confirmed by the FTA?
Case 11: Creation of KER on the sale of treasury shares
1. facts of the case
On November 1, 2019, the listed company X AG bought back 5% of its own shares on the stock exchange at a price of CHF 80 million. On October 15, 2024, it sold the shares on the stock exchange at a price of CHF 110 million and recognized the difference of CHF 30 million directly in equity against KER.
Variant: on November 1, 2025, X AG still holds the treasury shares and correctly declares the withholding tax using form 102 (including conversion into one hundred due to the lack of an option to pass it on); in 2027, X AG sells the treasury shares at a price of CHF 120 million.
Question
- To what extent can the CERs be confirmed by the FTA?
Case 12: Sister merger with own shares
1. facts of the case
X AG is absorbed by its sister company Y. AG is absorbed.
X. AG has a share capital of CHF 20 million and holds treasury shares with a nominal value of CHF 2 million, which were repurchased at the time for CHF 17 million (variant: CHF 23 million).
Question
- To what extent can the CERs be confirmed by the FTA?
Case 13: Beneficiary in the case of withholding tax
1. facts of the case
Patron XY holds three operating companies via HoldCo, which manufacture high-quality products that are well-known and popular worldwide; XY is regarded as a model entrepreneur in Switzerland.
The staff are employed by Mgt.Co and insured for occupational benefits by the Group's own pension fund; under the management of XY, this fund achieves above-average returns.
HoldCo holds the valuable trademark right and thus generates substantial license income.
XY also holds Family Office AG, which acts as an asset management company for the family (and is completely independent of HoldCo).
In 2020, the pension fund granted a mortgage-backed loan of CHF 10 million to an independent building cooperative; the building cooperative is planning to build a luxury park hotel with an investment volume of CHF 200 million.
In 2022, it is publicly established that the building cooperative has fraudulently deceived its investors and lenders and that the value of the hotel is only CHF 20 million. The market value of the pension fund loan now amounts to CHF 1 million.
The pension fund could easily cover the loss thanks to its other investments; the financial loss would be negligible. So that the pension fund does not have to appear in public (and high-profile) bankruptcy proceedings, XY decides immediately after the deception becomes known that Family Office AG will purchase the pension fund's loan at the nominal value of CHF 10 million; Family Office AG then writes off the loan.
Questions
- Are there any tax consequences with regard to the levying of withholding tax?
- If so, who qualifies as a beneficiary in the present case? Cui bono?
- Does the withholding tax assessment change if the HoldCo takes over the loan at nominal value?
Case 14: Date on which the withholding tax claim arises
1. facts of the case
X. AG has been renting an apartment to its sole shareholder X. for CHF 2,000 per month for many years. The rent is due at the end of each month (with a payment period of 30 days).
The market price for the apartment is CHF 4,000.
In addition, X. AG sold a painting with a value of CHF 2 million to X. for CHF 100,000 on January 31, 2023.
In June 2024, the FTA carries out an inspection at X. AG and establishes that the apartment was rented at a lower price and the painting was sold at a lower price.
The financial year of X. AG corresponds to the calendar year. The Annual General Meeting was held on June 30 of the following year.
Questions
- From when is interest on arrears for withholding tax due?
- For which years can the FTA enforce its withholding tax claim?