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Individuals

Stefan Oesterhelt

Henk Fenners

Tax-free capital gains for natural persons

Workshop by Stefan Oesterhelt and Henk Fenners on the occasion of the ISIS) seminar on 05 April 2022 entitled "Current tax issues in domestic and international M&A transactions".

04/2022
The complete seminar folder can be ordered for CHF
The corresponding case solutions can be purchased for CHF
120.00
(introductory price)
can be purchased in the shop.
The workshops are also available individually in the "Documents" section.
The case solutions and other documents can be obtained free of charge in the shop.

A) Indirect partial liquidation / harmful distribution of assets

Case 1: Determination of the return on assets / decisive variables

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. As of 10 January 2021, he sold the (operating) company to Y. AG for CHF 5,000.

The ordinary operating profit 2021 of X. AG amounts to CHF 1,000. On 30 March 2022, the general meeting resolves a dividend for 2021 in the amount of CHF 2,000.

The balance sheet of X. AG adopted by the AGM on 30 March 2021. AG as at 31 December 2020 shows the following picture:

Question

Will the sale of the shares in X. AG and the dividend distribution in 2022 have income tax consequences? If so, for whom and in what amount?

Variant

What would have to be considered (with regard to the refund of withholding tax) if the seller were a natural person resident in Germany?

Case 2: Treatment of capital contribution reserves (CER)

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. As of 10 August 2021, he sold the company to Y. AG for CHF 5,000.

The ordinary operating profit 2021 of X. AG amounts to CHF 0. On 30 March 2022, the general meeting resolves a dividend for 2021 in the amount of CHF 1,500.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

Question

Will the sale of the shares in X. AG and the dividend distribution in 2022 have income tax consequences? If so, for whom and in what amount?

Variant

What would have to be considered (with regard to the refund of withholding tax) if the seller were a natural person resident in Germany?

Case 3: Total liquidation of the target company

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. As of 10 August 2021, he sold the company to Y. AG for CHF 5,000. X. AG achieves an ordinary operating profit of CHF 1,000 in 2021.

On 2 March 2022, the two companies merged by Y. AG retroactively absorbing X. AG as of 1 January 2022 and taking over its assets and liabilities. AG and took over its assets and liabilities. The merger is profit tax neutral.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of Y. AG as at 31 December 2021 shows the following picture:

Question

Resulting from the sale of the shares of X. AG and the subsequent absorption of X. AG by Y. AG have any income tax consequences? If so, for whom and in what amount?

Variant

Would the assessment change if it was not Y. AG that had acquired X. AG but X. AG had absorbed Y. AG (downstream merger)?

variant 2

What would have to be considered (with regard to the refund of withholding tax) if the seller were a natural person resident in Germany?

Case 4: Losses within the distribution lock-up period

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. On 10 August 2016, he sold the company to Y. AG for CHF 5,000.

At the time of sale, there are distributable reserves and non-operating assets in the amount of CHF 1,000.

The X. AG has been distributing dividends in a constant amount for many years. This distribution practice will be continued after the sale.

The ordinary operating profits of X. AG and distributions to Y. AG after the sale show the following picture:

Question

Do the sale of the shares in X. AG in 2016 and the dividend distributions in the following years? If so, for whom and in what amount?

Variant

What would have to be considered (with regard to the refund of withholding tax) if the seller were a natural person resident in Germany?

Case 5: Sale of a holding company

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. In X. AG he had combined his shareholdings A. AG and B. AG (100% each) were combined in X. AG. As of 10 August 2021, he sold X. AG to Y. AG for CHF 10,000.

In 2022, B. AG decides to pay a dividend of CHF 2,000 for the year 2021, which X. AG in the same amount and also in 2022, i.e. congruent in phase, to Y. AG.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of B. AG as at 31 December 2020 shows the following picture:

Question

Will the sale of the shares in X. AG and the dividend distribution in 2022 have income tax consequences? If so, for whom and in what amount?

Variant

What would have to be considered (with regard to the refund of withholding tax) if the seller were a natural person resident in Germany?

Case 6: Sale of a holding company (variant)

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona. In X. AG he had combined his participations A. GmbH (Germany) and B. AG (domestic) (100% each) were combined in X. AG. As of 10 August 2021, he sold X. AG to Y. AG for CHF 10,000.

In 2022, B. AG resolves to pay a dividend for the year 2021 in the amount of CHF 1,000 (operating profit B. AG 2021 is CHF 0).

In 2022, A. GmbH decides to pay a dividend for the year 2021 in the amount of CHF 1,000 (operating profit A. GmbH 2021 is CHF 500).

X. AG decides to pay a dividend of CHF 2,000 in 2023 (operating profit B. AG 2022 is CHF 1,000; operating profit A. GmbH 2022 is CHF 0).

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of B. AG as at 31 December 2020 shows the following picture:

The balance sheet of A. GmbH as at 31 December 2020 shows the following picture:

Question

Will the sale of the shares in X. AG and the dividend distribution in 2022 have income tax consequences? If so, for whom and in what amount?

Case 7: Seller loan

Facts

S., a resident of St. Gallen, is the sole shareholder of X. AG with its registered office in Rapperswil-Jona. He intends to sell the company for CHF 5,000 to Y. AG; Y. AG was only recently founded by his son. The purchase price for X. AG is based on a valuation report using the DCF method.

Y. AG does not have the necessary funds to finance the purchase price for X. AG to finance the purchase price. S. therefore wants to grant Y. AG a loan in the amount of CHF 4,000 that does not bear interest and does not have to be amortised in the first five years.

The balance sheet of Y. AG after the transaction would have the following picture:

The last balance sheet of X. AG before the planned sale shows the following picture:

Question

How should the sale be assessed from an income tax perspective?

Case 8: Seller loan / hidden equity capital

Facts

S., a resident of St. Gallen, is the sole shareholder of X. AG with its registered office in Rapperswil-Jona. He intends to sell the company for CHF 5,000 to Y. AG; Y. AG was only recently founded by his son. The purchase price for X. AG is based on a valuation report using the DCF method.

Y. AG does not have the necessary funds to finance the purchase price for X. AG. On the one hand, the purchase price is to be financed by a bank loan in the amount of CHF 1,000, which bears interest at 1.5 % per annum and is to be amortised within 5 years. On the other hand, S. is prepared to grant Y. AG a loan in the amount of CHF 3,000. Interest and amortisation of the vendor loan is not provided for.

The balance sheet of Y. AG after the transaction would have the following picture:

The last balance sheet of X. AG before the planned sale shows the following picture:

Question

How should the sale be treated from an income tax perspective?

B) Indirect partial liquidation / deferrals

Case 9: Mantle trade

Facts

S., a resident of St. Gallen, had been the sole shareholder of X. AG with its registered office in Rapperswil-Jona. The trading activities of X. AG was discontinued a little more than a year ago.

As of 1 April 2021, S. sold the company for CHF 10,000 to Y. AG, which then distributed goods through X. AG distributes goods.

The ordinary operating profit 2021 of X. AG amounts to CHF 1,000. On 30 March 2022, the general meeting resolves a dividend for 2021 in the amount of CHF 2,000.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

Question

Do the sale of the shares in X. AG have income tax consequences? If so, for whom and in what amount?

Case 10: Quasifusion

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona.

As of 1 April 2021, he transferred all shares in X. AG at a market value of CHF 2,000 to Y. AG, which is wholly owned by Y. AG, WHICH IS WHOLLY OWNED BY Y. Y. AG carried out a capital increase in the amount of CHF 1,000, excluding Y.'s subscription rights. S. received all of the newly issued shares in Y. AG. The added value of CHF 1,000 was credited to S. as a loan.

The ordinary operating profit 2021 of X. AG amounts to CHF 1,000. On 30 March 2022, the general meeting of shareholders resolves a dividend for 2021 in the amount of CHF 1,200.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of Y. AG after the takeover of X. AG shows the following picture:

Question

Do the transfer of the shares in X. AG and the dividend distribution in 2022 have income tax consequences? If so, for whom and in what amount?

Variant

How would the case be assessed if S. were to receive cash compensation in the amount of CHF 1,200 and shares in Y. AG to the value of CHF 800?

C) Transposition / Delimitations

Case 11: Economic change of ownership

Facts

S., a resident of the Canton of Zurich, was the sole shareholder of X. AG, a real estate company with its registered office in Rapperswil-Jona and properties in the cantons of St. Gallen and Schwyz.

As of 1 April 2021, S. transferred all shares in X. AG at a market value of CHF 9,000 to Y. AG, which he had founded shortly before and which he also owns. He left CHF 8,000 of the purchase price as a loan.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of Y. AG after the transfer of the shares in X. AG shows the following picture:

Question

Are there any tax consequences from the transfer of the shares in X. AG have tax consequences? If so, in what amount?

Case 12: Quasifusion

Facts

S., a resident of St. Gallen, was the sole shareholder of X. AG with its registered office in Rapperswil-Jona.

As of 1 April 2021, he transferred all shares in X. AG at a market value of CHF 2,000 to Y. AG, which is wholly owned by Y. AG, WHICH IS WHOLLY OWNED BY Y. Y. AG carried out a capital increase in the amount of CHF 1,000, excluding Y.'s subscription rights. S. received all of the newly issued shares in Y. AG. The added value of CHF 1,000 was credited to S. as a loan.

The balance sheet of X. AG as at 31 December 2020 shows the following picture:

The balance sheet of Y. AG after the takeover of X. AG shows the following picture:

Question

Are there any income tax consequences from the transfer of the shares in X. AG have income tax consequences? If so, in what amount?

Case 13: Multiple sellers

Facts

S., a resident of St. Gallen, was a 15% shareholder of X. AG with its registered office in Rapperswil-Jona. The other shareholders were natural persons in Germany (30%), France (30%) and a person taxed in the UK as a resident but not domiciled person (25%).

Together they sell X. AG on 10 August 2021 for CHF 5,000 to the domestic Y . AG. According to the balance sheet as at 31.12.2020, X. AG has non-operating distributable funds of CHF 3,000, which will be distributed to Y. AG in 2022.

Question

Does S. result in a reclassification pursuant to Art. 20a para. 1 lit. a DBG? Will the old reserves practice be applied?

Case 14: Sale after departure

Facts

S., a resident of St. Gallen, was a 100% shareholder of X. AG with its registered office in Rapperswil-Jona. On 15 January 2022, he moves to Portugal, where he retires and is taxed at a flat rate. On 15 February 2022, he sells X. AG to Y. AG for CHF 5,000. The purchase price of CHF 2,000 is left as a vendor loan.

At the time of sale, X. AG has distributable, non-operating funds of CHF 2'000. X. AG distributes these to Y. AG on 15 March 2022. AG distributes these to Y. AG on 15 March 2022, which uses them to repay the vendor loan.

Question

What are the income and withholding tax consequences?

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