Domestic restructuring

Case 1: Sale of shareholding by means of holding split

1. facts of the case

Mr. A, a resident of Switzerland, holds 100 percent of the capital of A AG, which is domiciled in Switzerland. A AG runs various restaurant businesses (business R) and in turn holds 100 percent of the capital of B AG. B AG runs a hotel business (business H), whereby the hotel building is leased from a third party. Now that Mr. A has decided to focus on the restaurant business, he would like to sell the participation in B AG. With Kauf AG, a potential interested party is soon found, so that Mr. A, together with his tax advisor, examines various options for the optimal structuring in order to be able to prepare a tax-optimized sale.

2. initial situation

3. variant A

The investment in B AG is sold by A AG to Kauf AG at fair value.

Question:

• What are the tax consequences for A AG, B AG, Mr. A and Kauf AG?

4. variant B

The investment in B AG is distributed to Mr. A at book value and subsequently sold by Mr. A to Kauf AG at fair value.

Question:

• What are the tax consequences for A AG, B AG, Mr. A and Kauf AG?

5. variant C

B AG is absorbed by A AG, resulting in the merged AB AG. Subsequently, AB AG is split into A AG and B AG so that Mr. A can sell the spun-off shareholding in B AG to Kauf AG at fair value.  

Question:

• What are the tax consequences for A AG, B AG, Mr. A and Kauf AG?

6. variant D

Holding AG, which holds the participation in B AG, is spun off from A AG. Subsequently, Mr. A sells Holding AG at fair value to Kauf AG. Immediately (alternatively 18 months) after the purchase, B AG absorbs Holding AG to simplify the structure.

Question:

• What are the tax consequences for A AG, B AG, Holding AG, Mr. A and Kauf AG?

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Case 2: Spin-off of real estate

1. facts of the case

A AG is an industrial company which runs its operations on its own company land in the city of Z. Due to the traffic situation and because the production facilities and administrative buildings no longer meet current and future needs, it plans to build new production facilities and administrative buildings on an industrial site in a good traffic location on the periphery of the city of Z in the medium term. It also plans to either sell the old site or develop it in cooperation with a real estate developer. A AG is 100% owned by a German industrial group whose shares are listed on the stock exchange in Frankfurt.

In order to create flexibility for future planning and development, A AG intends in a first step to create an OpCo / PropCo structure according to the following procedure: A AG spins off the operating property into a newly founded A Immo AG. Immediately thereafter, it distributes its 100% shareholding in A Immo AG to its parent company (classic demerger in two steps).

2. initial situation

1. variant A

In the course of the proposed classic demerger, A AG is to lease back the entire business premises and the business and office buildings standing thereon from A Immo AG. The book value of the land and the old operational and office buildings standing on it is low. Due to the high land value and the development potential, the market value is around CHF 100 million. The envisaged rent for the operational and office buildings is CHF 3 million per year. This is a so-called "triple net" rent, where the entire rent, where the entire maintenance as well as the insurance of the property lies with the tenant. A Immo AG shall have one employee. This is the previous manager of the operational and office buildings, who is to be newly employed by A Immo AG at his previous gross salary of CHF 150,000 per year.

Questions:

1. What are the requirements for a tax-neutral spin-off of the real estate part?
2. What would be the requirements for a tax-neutral transfer of assets within the group?
3. Is there a cantonal margin of appreciation?

4. variant B

Part of the business property held by A AG (vacant halls, office space no longer required, archive rooms and some parking spaces) has already been rented out to third parties by A AG (and is now being rented out to them by A Immo AG after the Spin-off). The respective lease terms vary and there have also been changes in tenants and/or temporary vacancies on occasion. The rental agreements concluded with third parties are normal rental agreements with à conto payments for and periodic billing of the actual ancillary costs. The maintenance for the sublet areas is considerable.

Question:

• Is the dual operating requirement met?

5. variant C

Should A AG quickly find a suitable replacement property after the spin-off of the business premises, it is planned, if necessary in cooperation with a property developer, to further develop the former location within the framework of a design plan. During the planning phase, the former company site is to be rented to third parties as part of a conversion and interim use. However, the rental income that can be generated from this is likely to be significantly lower than the rent that A AG will no longer have to pay after moving into the new location.

Question

Will the tax-neutral demerger (or tax-neutral transfer of assets within the group) remain?

2. variant D

Even before A AG moves into the new location, the parent company sells its 100% stake in A Immo AG to a real estate developer.

Question:

Will the tax-neutral demerger (or tax-neutral transfer of assets within the group) remain?

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Case 3: Transfer of equity interests

1. facts of the case

X AG holds 100 percent of the shares in Y AG. For its part, Y AG holds 100 percent in A AG, B AG and C AG, with the tax domicile of C AG being abroad. In a first step, Y AG distributes its shareholdings in A AG, B AG and C AG to X AG. As a result of this distribution, X AG must make a value adjustment of 200 on the investment in Y AG under commercial law. In a second step, X AG transfers its participation in B AG to C AG at a profit tax value of 100.

2. initial situation

3. restructuring step 1

Y AG distributes the investments in A AG, B AG and C AG to X AG.

a) at profit tax values,

b) at fair value,

c) or at a value between profit tax and fair market values (A AG at 200, B AG at 300 and C AG at 100).

Questions:

1. Is restructuring step 1 possible in a tax-neutral manner?
2. How should the value adjustment of the investment in Y AG at X AG be assessed under tax law?
3. What are the prime costs of the investments in A AG, B AG, C AG and Y AG at level X AG after restructuring step 1?

4. restructuring step 2

X AG transfers the shareholding in B AG

a) at the profit tax value

b) at fair value

to C AG.

Questions:

1. Is restructuring step 2 possible in a tax-neutral manner?
2. What are the prime costs of the investments in B AG and C AG after restructuring step 2?
3. What tax considerations should be made with regard to the transfer of B AG to C AG?

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Case 4: Capital contributions

1. facts of the case

The three siblings A1, A2 and A3 have an indirect shareholding in C AG via A Erben AG, which was set up by their parents, who have since died, of 100% in total and ^331/3% individually. The company managed by C AG and headed by A3 is in an expansion phase and requires substantial additional funds. Since these cannot be procured (or not completely) via bank financing, the siblings agree to make part of the liquid assets inherited from their parents available to C AG as risk-bearing additional equity.

2. initial situation

3. variant A

In order to avoid an accumulation of issue taxes, the three heirs decide to inject CHF 1 million each into C AG, which records the open contribution as (other) capital reserves in the balance sheet without affecting the income statement.

Questions

1. Tax consequences of open grant at C AG?
2. Tax consequences of hidden subsidy at A Erben AG?
3. Tax consequence of the grant in the case of heirs A1, A2 and A3

4. variant B

The expansion is successful and the business of C AG is developing well. However, there are differing opinions among the heirs on the further expansion of the business of C AG and they agree that A3 will buy C AG from A Erben AG at the current market value and continue to manage it in the future under its own responsibility, while A1 and A2 will actively focus on the further development of the other investments held by A Erben AG (A AG and B AG). The funds released by A Erben AG from the sale of C AG will be fully invested in the further development of its remaining investments A AG and B AG. A3 will remain a passive investor in A Erben AG.

Two years after the acquisition of the 100% shareholding in C AG by A3, the latter is now distributing liquidity of CHF 3 million, which is no longer required, to its sole shareholder A3 as a result of gratifying cash flows. The distribution is charged to the open capital reserves of CHF 3 million, which were created a few years ago by means of a grant.

Questions

1. Tax consequences of the sale of the shareholding C AGat A Erben AG?
2. Tax consequences of the distribution of capital reserves of C AG to A3 at C AG?
3. Tax consequences of the distribution of capital reserves of C AG to A3 at A3?

5. variant C

A Erben AG and the shareholdings A AG and B AG, which it continues to hold, are also developing favorably following the sale of the shareholding in C AG. Due to the favorable development of the cash flows, the participations A AG and B AG can return to A Erben AG the own funds (capital reserves from open grant of A Erben AG) made available to them at that time from the proceeds of the sale of the participation C AG (distribution of recognized capital reserves). A Erben AG plans to distribute in the amount of CHF 3 million (corresponding to the amount of the hidden contribution made years before by way of a grant of CHF 3 million to C AG) a part of the profit realized from the sale of the participation in C AG to its shareholders A1, A2 and A3 as dividend.

Questions:

1. Tax consequences of the distribution of retained earnings of A Erben AG to its shareholders at A Erben AG?
2. Tax consequences of the distribution of retained earnings of A Erben AG to its shareholders A1, A2 and A3 in the latter's case?

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