Tax deferral in case of restructuring and replacement of business and private assets

Case 1: Asset swap pension fund with investment foundation

1. facts of the case

The young pension fund Alpha, domiciled in Zurich, is an employee benefit foundation within the meaning of Art. 48 para. 2 BVG. Alpha transferred its only property, a residential property in the city of Zurich, to the investment foundation Omega at a market value of CHF 16 million by way of a publicly notarized agreement dated January 15, 2020. Omega is an investment foundation within the meaning of Art. 53g BVG, the purpose of which is the collective investment and management of 2nd pillar assets serving exclusively for employee benefits and which is subject to the supervision of the FSIO.

For the transfer of the property, Alpha was compensated by Omega through the issuance of no-par value claims (book claim) in the investment group "I.". As a result of the transaction, Alpha converted its previous direct real estate ownership into an indirect real estate investment (asset swap). The asset swap was made in order to increase Alpha's return on the real estate investment due to a more efficient and professional real estate management as well as a broader diversification of risks.

The investment costs of the transferred property amounted to CHF 11 million at Alpha, the annual rental income to CHF 0.4 million. Alpha requested deferral of the real estate gains tax due to reorganization. The tax office of the City of Zurich rejected the deferral and assessed a taxable real estate gain of CHF 5 million.

Like Alpha, Omega is also exempt from profit tax pursuant to Art. 80 (2) BVG.

Question:

• Was the tax office of the city of Zurich justified in denying the tax deferral?

Case 2: Quasifusion

1. facts of the case

Andy Aebi (AA) and Bea Bürkli (BB), both resident in the Canton of Zurich, each hold 50% of the shares of Alpha Immo AG, domiciled in Zurich, which is active in the field of real estate development and management, as part of their private assets. Alpha Immo AG holds several multi-family houses and development projects in the Canton of Zurich.

The current structure can be represented as follows:

AA and BB intend to continue their real estate involvement in a diversified manner over the long term and plan to merge Alpha Immo AG with the listed real estate company Omega AG. Omega AG is to take over Alpha Immo AG by means of a quasi-merger. AA and BB will therefore transfer 100% of their shares in Alpha Immo AG to Omega AG at fair value, whereby they will be compensated with approximately 51% of the takeover value in shares in Omega AG (contribution in kind, Omega's shareholding totaling approximately 10%) and with approximately 49% of the takeover value in cash (purchase).

Omega AG does not rule out a merger of Alpha Immo AG with Omega AG.

The structure after quasifusion can be represented as follows:

AA and BB instruct you to obtain a ruling on the tax neutrality of the quasi-merger. As part of the confirmation of tax neutrality, the municipal tax offices involved inform you that they impose a five-year lock-up period on AA and BB with regard to the sale of the Omega AG shares received for the transfer of the Alpha Immo AG shares.

Questions

• Question 1: Can the quasi-merger be implemented in a property tax neutral manner?
• Question 2: What is your opinion of the imposition of a five-year lock-up period for Omega AG shares?
• Question 3 / Assumption: Alpha Immo AG is merged directly with Omega AG (no quasi-merger, sideways merger or merger of parallel companies) and AA and BB receive 20% Omega shares for their 100% Alpha Immo shares. How would the lock-up period be applied here?
• Question 4: What are the issues for property gains tax or income tax in case of Omega and Alpha merger within 5 years since the quasi-merger?
• Question 5: How do you assess the quasi-merger if AA and BB transfer their shares Alpha Immo AG to Omega Fund (collective investment scheme, contractual investment fund with indirect real estate ownership) against allocation of fund unit certificates?

Case 3: Replacement acquisition of two "used" properties?

1. facts (incl. graphical starting position)

The obligor X lived in the property No. 20 (AB1001) together with her family. The property was originally owned by her father. The parents, for their part, lived in property no. 22 (AB1002), which was also owned by them.

In 2004, the parents moved away and signed both properties over to the daughter as a gift.

In April 2020, property no. 22 (AB1002) will now be sold to a third party for CHF 3,600,000. Already in February 2020, property no. 20 (AB 1001) was sold to another party for CHF 4,100,000.

On October 12, 2018, X acquired a property in Küsnacht for CHF 10,000,000 in the sense of an "advance purchase", where she also moved her residence as of February 17, 2019.

On the occasion of the sale, a tax deferral is claimed for both properties due to replacement acquisition.

Houses 20 and 22 are independent of each other (accesses, heating systems, kitchen, bathrooms, garages, separate wine cellars) and there is no wall break-through. By means of various receipts, X or her tax representative proves that X together with her family used both properties "permanently".

Question

• Is a deferral to be granted as a result of replacement procurement and if so, to what extent?

Case 4: Replacement acquisition with cumulative ownership period of more than 20 years

1. facts of the case

In 2015, Mr. X sold his 1988 purchased EFH at a price of CHF 1.5 million and made a replacement purchase. At that time, the municipality of departure decreed a full deferral due to the replacement purchase, whereby the market value 20 years ago was set at CHF 800,000, the profit at CHF 700,000 and the real estate gains tax at CHF 134,700.

In 2021, Mr. X finally also sells his replacement property without making another replacement purchase.

The responsible Zurich municipal tax office carries out the usual overall taxation within the scope of the resolution and takes into account the deferred property gain of anno dazumal in the amount of CHF 700,000 as so-called "minus investment costs".

Mr. X then objects to the assessment decision on the grounds that the deferred profit must be recalculated due to the more than 20-year ownership period (purchase of original property to sale of replacement property).

Question

• Is Mr. X right?

Case 5: Permanent and exclusive self-use?

1. facts of the case

Family B purchased a condominium unit on S-Strasse in Zurich on February 27, 2009. They moved into the apartment on March 1, 2011.

After a major dispute, the spouses separated in August 2016. The wife moved to Spain together with the children, the husband moved his residence to Flims. For financial reasons, the previous family apartment was put up for rent for an indefinite period. As of March 2017, the apartment was already rented to a third party.

After the couple reconciled, they rented a family apartment on G-Strasse (in Zurich) from June 1, 2017.

On May 16, 2019, they sold the condominium unit on S-Strasse and acquired a new apartment on K-Strasse (also in Zurich) as a replacement property.

Question

• How should the replacement procurement be assessed in terms of timing?

Case 6: Replacement acquisition of two properties

1. facts of the case

The Meiser family purchased a single-family house in the municipality of Hettlingen on July 7, 2013 and lived in it until February 2016, when a change of residence became necessary due to a change in Mrs. Meiser's professional situation. Subsequently, on January 19, 2016, Mr. and Mrs. Meiser acquired a condominium in Rickenbach for CHF 1.35 million, which they moved into on February 21, 2016. The single-family house in Hettlingen, which was no longer needed, was subsequently sold on July 8, 2017 for CHF 1.7 million.

In the tax return for the real estate gains tax, the condominium in Rickenbach was not declared as a replacement property, as it was only intended to serve as a temporary residence until a suitable single-family home was acquired.

After a long search, the notarization of the purchase contract for a hearty single-family home on the outskirts of Winterthur with a large garden area for the children finally took place on March 3, 2019. The transfer of ownership as well as the occupation took place on January 15, 2020.

On February 22, 2020, the responsible municipal tax office receives an application for revision from the Meiser family, in which they request the deferral of the real estate gains tax from the sale of the single-family house in Hettlingen due to the acquisition of the single-family house in Winterthur as a replacement purchase.

Questions

• Question 1: Has the request for revision been received in time?
• Question 2: Is the tax deferral to be granted due to replacement?

Case 7: Replacement acquisition in the case of subsequently established condominium ownership

1. facts of the case

For a long time, the Lebewohl family lived happily and contentedly with their children in a large single-family home in Zurich. Now that the children have grown up and moved out, Mr. and Mrs. Lebewohl are considering acquiring a smaller condominium for themselves. The single-family house is therefore divided into three apartments, two of which are rented out and one of which is occupied by Mr. and Mrs. Lebewohl.

When they finally find their dream property, they move and establish condominium ownership on the original property.

They sell the apartment they previously occupied themselves to their son. The other two apartments continue to be rented out.

Mr. and Mrs. Lebewohl ask the tax office whether the sale of the apartment is eligible for a tax deferral due to replacement purchase.

Question

• What do you give in response?

Case 8: "Problematic 2-year time limit"

1. facts of the case

On October 11, 2021, the tax office of the municipality of Uster receives a request for a tax deferral due to the replacement of Mrs. Krankl.

The coordinates for the revision request are:

In the letter, Ms. Krankl states, among other things: "During the so-called 2-year period communicated to me, no suitable object could be found. In addition, as a result of family circumstances and also personal strokes of fate, I was psychologically heavily burdened and for years not in a position to make a replacement purchase."

The letter is accompanied by a confirmation from her therapist that Ms. Krankl has been undergoing psychotherapy with him since June 2017. The letter further states that, due to her symptoms, Ms. Krankl has subsequently not been able to look for or acquire a property in order to reinvest the proceeds from the sale of the property.

Questions

• Question 1: Are the conditions for the claimed replacement met, in particular with regard to the appropriateness of the time limit for claiming it?
• Question 2: Has Ms. Krankl sufficiently substantiated the evidence and allegations for the "cure" of the no objection period?
• Question 3: What are the criteria for distinguishing non-culpable violation of reasonable time vs. self-inflicted?

Case 9: Replacement acquisition on own property?

1. facts of the case

From March 9 to March 12, 2020, Werner Schmid sold three condominium units with a total value quota of 684/1000 co-ownership of the property Cat. No. 1 (GB Bl. 1), Wacholderweg 3, Zurich, at a total sales price of CHF 2,070,000. In the purchase contracts for the land shares, contractual agreements were also made.

Rutishauser Immobilienbau AG, Wil SG, was commissioned with the construction of the new building. The lump sum price for the building was CHF 4,240,000.

In the context of the real estate gains tax assessment in the fall of 2021, the tax office added together the price of the work and the price of the land in its determination. The tax deferral also claimed in respect of the attic apartment in the new building occupied by Schmid was not taken into account.

Schmid's tax representative subsequently filed an objection in due time. On the one hand, he requested that the work compensation and land price not be added together, as there was no identity between the seller of the land and the work contractor, not even an economic identity. On the other hand, he was of the opinion that the originally filed application for tax deferral should be taken into account accordingly in the taxation. He justified the latter with the fact that Schmid had occupied the previously demolished property himself until the end and had reinvested the sales profits now realized from the sales to build his apartment. This was a classic replacement constellation, which had to be taken into account accordingly.

Other details:

• VW 20 years ago (for building land): CHF 1'500'000
• Costs of change of ownership on sale: 2 ‰ (excluding VAT), divided in half

Questions

• Question 1: Is it not necessary in the present case to add up the compensation for work and the land price?
• Question 2: How should the replacement request be assessed?