Tax risks and opportunities for personal stock corporations
Workshop on the occasion of the ISIS) seminar on 2/3 March 2020 entitled "Corporate Tax Law 2020
Case 1 - Income from employment / donation
Facts 1A: Year of service gift
In 2012, C made payments totalling CHF 32,250 from his private assets under the title "Year of service gift" to couple A and B, who were employed by E AG for many years. E AG was wholly owned by D AG, which in turn was wholly owned by C. C and the married couple A and B were neighbours. At the end of 2010, C sold his company D AG to F AG. A and B were employed by E AG until the end of 2011 and June 2012 respectively. At the time of the grants at the end of 2012, there was no longer an employment relationship between A and B and E AG, and no social security contributions were paid on the grants. C claimed that the motive for the grants was to "give pleasure" out of personal relationships and not to motivate employees.
- What conditions must be met for a gift to be considered a gift?
- To what extent is the employment relationship or personal relationship in the foreground?
- How does the payment of C qualify for tax purposes?
Situation 1B: Sale of shares / price reduction
A was one of the five founding members of D AG and has since worked for the company as an employee. The company was founded in 1988 and has been active in the dental sector ever since. The founding shareholders entered into a shareholders' agreement (ABV). This contains, among other things, a valuation formula in the event of a sale of a shareholding among the shareholders (formula according to the Praktiker method, once net asset value and twice income value). In the following years, two shareholders left the company and sold their shareholdings to the remaining shareholders. By contract dated 20 May 2015, another shareholder sold half of his 60 shares to A and half to the other remaining shareholder E. The total purchase price was CHF 1 million or CHF 16,667 per share. The value per share according to the ABV formula was CHF 18,930, and according to the last official valuation for wealth tax purposes CHF 19,500.
The tax administration assumed for A a monetary benefit from employee participation of CHF 67,903. This amount was calculated on the basis of the difference between the purchase price and the aforementioned value according to the ABV formula.
- What legal basis can be used for offsetting and what conditions must be met?
- Does the difference between purchase price and formula value represent taxable income?
Case 2 - Indirect partial liquidation
C SA has a share capital of CHF 600,000 (consisting of 600 shares with a nominal value of CHF 1,000 each) and is held 30% by the natural person F and 70% by the company E SA. In 2006, F dies and his three children A, G and J and the widow B of the predeceased fourth child H each receive 7.5% shares in C SA. In 2010, A, B, G and J sell their shares (180 shares, 30%) in C SA to I SA for a total purchase price of CHF 1.8 million (purchase price of CHF 10,000 per share). I SA is held 50.2% by G and 49.8% by J. In 2013, E SA decides to pay an extraordinary dividend of CHF 5 million to C SA. At the time of the sale of the shares in 2010, C SA has total distributable reserves of CHF 4,113,625 and non-operating assets of CHF 3.5 million.
What are the tax consequences for A, B, G and J of the sale of the shares in C SA and the substance dividend of C SA?
Case 3 - Triangular theory / Factual interlocking
For 2005, A declared income from employment as sales manager at B SA amounting to CHF 128,726 and was legally assessed in 2007. In 2013, the tax administration opened an after-tax and tax evasion procedure against A. The background to this procedure was income that A had received from C GmbH. In particular, C GmbH paid for a family trip to Disneyland in Paris this year at the instigation of A, the leasing instalment for a BMW car, which was used privately, and two Bang & Olufsen plants. A's sister is a partner of C GmbH and formal managing director. By decision of 10 February 2015, the tax administration imposed on A additional taxes in the amount of 16,328 and fines in the amount of CHF 19,595. A objected to this and, after the objection was rejected, appealed and filed a complaint with the Tax Appeal Commission. The Commission suspended the after-tax proceedings and approved A's appeal and complaint against the tax fines. The Cantonal Tax Administration lodged an appeal against this.
- Are the services of C GmbH attributable to A for income tax purposes?
- Are the conditions for tax evasion fulfilled for A?
Case 4 - Additional deduction for R&D
X AG is an SME and is active in the production and sale of packaging materials. The company wants to position itself in a niche market of sustainable and ecologically degradable packaging. To this end, the company has four employees working on the development of new packaging solutions. The workload of these employees is 380% and the annual salary costs including social security amount to CHF 600,000. The company commissions a university in Switzerland and a university abroad to carry out studies. The costs for this amount to CHF 100,000 in each case in the financial year. The expenses for the procurement of office and laboratory equipment for the four employees amounted to CHF 500,000 in the last five years. In the financial year in question, CHF 200,000 is spent on market research. The company is domiciled in a canton that provides for an additional deduction for R&D of 50% and a relief limitation of 70%.
The company's income statement is as follows:
Can X AG claim the additional deduction for R&D and if so, how is it calculated and what aspects must be taken into account?