Employee vs. entrepreneurial participation in stock corporation law, accounting and tax practice; outlook on the corporate tax reform

Company succession through employee participation

Case 1.1: Participation CEO

Facts

Nicklaus Peterhans has built up and managed Peterhans Automations AG over the past decades. He is the sole shareholder of the company. At the age of 60 he is looking for a successor as managing director. He does not intend to sell the majority of the company.

Adrian Keller is 35 years old and interested in the challenging task. He has a greater affinity for IT than Nicklaus Peterhans and sees exciting opportunities to modernise the business areas of Peterhans Automations AG with IT-based process optimisation.

Nicklaus Peterhans is not so sure whether the ideas of the younger one will be accepted by the market. He therefore proposes a performance-related salary to him. In addition to a fixed salary that is customary in the market but rather low, a variable salary depending on the company's success should be added. However, Adrian Keller sees himself as an entrepreneur and also believes that it would be better for the market if he could present himself as a partner of Nicklaus Peterhans. He would therefore prefer a share in the company instead of the variable salary component.

The two therefore agree that Adrian Keller can acquire 10% of Nicklaus Peterhans' shares at a nominal value of CHF 10,000. The company itself owns this 10% of the shares. It bought them back a year ago from a former supplier who had held a cross-participation in the company for a while. The purchase price at that time was CHF 50'000.

In a shareholders' agreement, the two new shareholders regulate the following, among other things:

• Only 50% of the profit is distributed.
• Nicklaus Peterhans can and must acquire the shares of Adrian Keller upon termination of his employment at the book value at that time.
• Adrian Keller may not sell the shares to a third party.

Questions

• How is the sale of shares booked at Peterhans Automations AG?
• How are dividends taxed at Adrian Keller?
• How is the purchase of the shares treated for tax purposes?
• How is the sale of the shares accounted for on termination of employment?
• How is the sale of shares on termination of employment treated for tax purposes?

Case 1.2 Management buy-in

Facts

Stefan Ramseier owns 100% of Textilspezialitäten AG. He has developed it into a niche player over the last 10 years. The company has developed a patent for the coating of textiles against mosquitoes. This puts him in competition with pharmaceutical companies that see their market for drugs against diseases transmitted by mosquitoes at risk.

He is now looking for a successor who can lead the company into the future. This must be someone who has the best contacts on the African continent, since that is where the largest market for the textiles of Textilspezialitäten AG is. At the same time, it is important to prevent a large corporation from the pharmaceutical industry from obtaining the patents. Such groups would possibly prevent the new technology from being used. He has already been offered a price of CHF 5 million for his shares.

After a long search Stefan Ramseier meets Philippe Fischer, a development aid worker and tropical medicine specialist. He has spent the last 20 years in Africa and has led projects against the spread of malaria with various development aid organisations on behalf of the Swiss Confederation.

Philippe Fischer would be the right successor for Stefan Ramseier. But he only has a small fortune from an inheritance. This is by far not enough to pay a price for the shares that large corporations would offer.

Stefan Ramseier is not looking for the big capital gain. He is concerned that his technology is used for the benefit of mankind. Therefore he and Philippe Fischer find the following arrangements:

• Employment as CEO at a salary in line with the market;
• Stefan Ramseier remains Chairman of the Board. Philipp Fischer is elected to the Board of Directors;
• Sale of 49% of the shares at a price of 490'000;
• Option to 51% of the shares after five years, provided that the patent is then used. Purchase price then CHF 510'000;
• Right of first refusal for the patent at a symbolic price of CHF 1 for Stefan Ramseier;
• Call option for Stefan Ramseier for 49% of the shares at a price of CHF 490'000 (exercisable within five years)

questions:

• How is the sale of shares booked in Textilspezialitäten AG?
• How is the purchase of shares in the case of Stefan Ramseier and Philippe Fischer treated for tax purposes?

Case 1.3. transfer to Ziehsohn

Facts

Jonathan Birchmeier has been managing a bakery company in the Solothurn area, JB Bakery AG, for 40 years. Originally he took over a village bakery from his father. From this he has developed a regional company.

Jonathan Birchmeier is married but has no children. He and his wife have always been committed to helping children and families in need. For example, he has offered apprenticeships in his company to children with school difficulties. One of these former apprentices is Raphael Knöpfli. He seized his chance, completed the master craftsman training after his apprenticeship and then even trained in business management.

He has been Jonathan Birchmeier's deputy for five years. Mr. Birchmeier has chosen him as his successor after the positive experiences. Mr and Mrs Birchmeier also have a close personal relationship with Raffael Knöpfli. He is like a foster son to her.

Mr. Birchmeier is seriously ill and can no longer manage the company himself. He and his wife agree to sell the shares in JB Bakery AG to Raffael Knöpfli for a symbolic purchase price of CHF 1. Thanks to sufficient private assets and insurances Mrs. Birchmeier is well taken care of. It does not require any money from the sale of the company.

Questions

• How is the sale of shares booked at JB Bakery AG?
• How is the purchase of the shares by Mr. and Mrs. Birchmeier and Raffael Knöpfli treated for tax purposes?

Company succession through employee participation

Case 1.4 Entry and exit of partners

Facts

Marcel Kalt and Theo Wetter jointly manage K&W Anwälte AG. They each own 50% of the shares. They also have contracts of employment with the company and receive a salary in line with market rates.

In their shareholders' agreement, they have, inter alia, agreed the following:

• Each partner is also a member of the Board of Directors;
• Half of the profits each;
• Profits are distributed annually to the extent permitted by commercial law;
• If a partner retires from operational activities, the retiring partner must sell the shares to the remaining partner at their book value and resigns from the Board of Directors.

Theo Wetter is older than Marcel Kalt and at the age of 60 decides to sail around the world with his partner for five years.

He sells his shares to his partner in accordance with the ABV at a price of CHF 150'000.

Marcel Kalt must find at least one new partner for the succession. He's hiring two young lawyers. They bring along only a few mandates, but are to be given an equal financial share from the outset. Marcel Kalt is therefore selling them each 33% of the shares at a price of CHF 300,000 each.

The two young partners will also become members of the Board of Directors. Marcel Kalt remains Chairman of the Board. Unanimity is agreed for important decisions.

questions:

• How is the sale of shares booked in K&W Anwälte AG?
• How is the purchase of the shares with Mr Kalt treated for tax purposes?
• How is the sale of the shares in the case of Mr Kalt treated for tax purposes?

Case 1.5 Sale of shares by holding company

Facts

Roger Meisterhans spent 20 years building up the RM Asset Management Group. He specializes in private equity investments. He searches and acquires them for his various customers. Parallel to these, he also invests in the target companies himself. For this purpose, he transferred his shares in RM Vermögensverwaltungs AG to RM Holding AG years ago. The holding company also holds the various private equity investments of its own.

In order to spread the know-how and with a view to his succession, Roger Meisterhans has built up a management team over the last five years. In addition to him, Sonja Malär and Reto Bächli belong to the management. Both are younger and complement Roger Meisterhans especially in the field of new technologies and sustainable industries.

After five years, Roger Meisterhans is convinced that these two can succeed him. He decides to withdraw from the operational management. In future he will support his two younger colleagues as Chairman of the Board of Directors. Through his RM Holding AG, he continues to hold the private equity investments and will also make further purchases.

As a succession measure, he has acquired Sonja Malär and Reto Bächli, each with one third of RM Vermögensverwaltungs AG. For this purpose, RM Holding AG sells the corresponding number of shares to them. The purchase price corresponds to the net asset value. They will also become members of the Board of Directors.

Questions

• How is the sale of shares booked at RM Vermögensverwaltungs AG?
• How is the sale of shares booked in RM Holding AG?
• How is the sale of shares in Roger Meisterhans treated for tax purposes?
• How is the purchase of shares in Sonja Malär and Reto Bächli treated for tax purposes?

Current issues and outlook on the corporate tax reform

Case 2: Succession regulation via personal holding companies

Facts

Andreas Grossenbacher is the sole shareholder of Grossenbacher Maschinenbau AG. This company has been operating extremely successfully for about 10 years. For financial and tax reasons, the conservative sole shareholder received dividends only very rarely and to a small extent. The company therefore has extensive liquid funds and reserves.

Andreas Grossenbacher is 58 years old and has been widowed for two years. His fortune consists mainly of his own single-family house and the participation in Grossenbacher Maschinenbau AG. The value of the investment is currently estimated at CHF 30 million. In addition, he has claims against a BVG pension fund whose management plan enables him to continue his lifestyle in a comfortable manner. He is debt-free.

The marriage produced two sons, Anton and Martin:

• Anton, graduate engineer ETH, has worked for 10 years as Head of Production at Grossenbacher Maschinenbau AG. His professional experience and management training prior to joining his father's company would enable him to succeed his father. In agreement with his brother, it is planned that son Anton will take over the operational management of Grossenbacher Maschinenbau AG in the medium term, so that his father can concentrate on his part-time function as a lecturer at the Institute of Mechanical Engineering at ETH Zurich.
• Martin studied political science at the University of St. Gallen and holds a leading position in the FDFA. He has no ambitions to be involved in Grossenbacher Maschinenbau AG.

On 15 December 2017, the father dies unexpectedly of a stroke. His son Anton will take over the position as CEO of Grossenbacher Maschinenbau AG, which he has already planned. Father Andreas did not draw up a will, but in a letter deposited with a notary public he ordered that a shareholders' agreement be drawn up for the holdings. Sales between the sons are to be made at the property tax value applicable for tax purposes. The two sons respect this and have such a contract drawn up and signed.

Question

What are the reasons for and against the transfer of the inherited holdings of Anton and Martin Grossenbacher to personal holding companies?

Extension of facts 1

The results of Grossenbacher Maschinenbau AG collapse considerably after the death of Andreas Grossenbacher. The payment of dividends must be suspended.

Son Martin has decided to contribute his share of the inherited interest to a personal holding company and has already done so on 15 January 2018. Due to the insufficient return, he intends to sell his investment in order to invest the proceeds in more profitable equity investments. Due to the shareholders' agreement, however, he can only sell the shareholding to his brother Anton.

His brother Anton takes over this participation in his personal holding company, but has to finance it with a loan from the ZKB.

Question

Assess the structuring of Son Martin's assets through a personal holding company from a tax planning and tax law perspective.

Extension of facts 2

After the death of Andreas Grossenbacher, the results of Grossenbacher Maschinenbau AG have developed far better than expected.

Son Martin has decided to contribute his share of the inherited interest to a personal holding company and has already done so on 15 January 2018. Due to the substantial increase in value of the investment, he decided to realise the added value and sell his investment in order to invest the proceeds in other equity investments. Due to the shareholders' agreement, however, he can only sell the shareholding to his brother Anton.

His brother Anton takes over this participation in his personal holding company, but has to finance it with a loan from the ZKB.

Question

Assess the structuring of Son Martin's assets through a personal holding company from a tax planning and tax law perspective.

Case 3: Revealing hidden reserves in the event of loss of status and offsetting of previous year's losses

Facts

As of the cut-off date of the waiver or loss of the cantonal tax status of the joint enterprise in accordance with Art. 28 para. 4 StHG, the following amounts of hidden reserves exist on the foreign-related result in accordance with Art. 28 para. 3 lit. c StHG and the related foreign losses:

Questions

• Which amounts can be disclosed without affecting profit tax on the balance sheet date?
• What is the amount of the unoffset prior-year losses from the period of status taxation that can be offset against subsequent net profits after the commencement of ordinary taxation pursuant to Art. 25 para. 2 StHG?

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