Tax optimization of external succession options: Sale to yet unknown domestic or foreign entrepreneur (MBI), sale to strategic investors in Germany or abroad (M&A)

Case study 1

Management buy-in

Facts

Frédéric Fleissig and Gisela Genial (both resident in Zurich) intend to acquire a 30% stake in Innovative Solutions AG, Wollerau/SZ, which was founded in 2002, and also to participate actively in the management of the company. The shares will be offered to Mr. Fleissig and Mrs. Genial by the founding shareholder of Innovative Solutions AG, IT Holding AG, domiciled in Zurich, at a price of CHF 3,000,000 each, for 30% of the shares.
At a later date, Kurt Kreativ, who is currently still working as a self-employed IT consultant, is also to join Innovative Solutions AG as an employee and will be able to acquire 5% of the shares of Innovative Solutions AG from its own holdings at a price of 50% of the market value. It is also stipulated that Mr. Kreativ may not sell the shares thus acquired for the duration of his employment with Innovative Solutions AG. Upon leaving Innovative Solutions AG, Kurt Kreativ must return the employee shares received to the company, whereby the shares will be repurchased by Innovative Solutions AG at the fair market value at the time of repurchase.

The balance sheet of Innovative Solutions AG as of 31.12.2019 is as follows (in TCHF)

Questions

1. What is more advantageous in tax terms for F. Fleissig and G. Genial: asset deal or share deal?
2. What is more advantageous from the point of view of the selling shareholders and Innovative Solutions AG?
3. How is the planned 5% participation of the future Head Innovation Kurt Kreativ to be treated for tax purposes?
   a. At the level of Innovative Solutions AG
   b. At the level of Kurt Kreativ

Case study 2

Management buy-in

Facts

Samuel Scheu and Max Mutig are considering acquiring 100% of the shares in the established and successful Online Handels AG from Paul Patron and at the same time taking over the operational management of the company from Paul Patron, each with a full time job. Online Handels AG has greatly automated its processes and, in addition to the two new shareholders, employs only 10 full-time staff. The purchase price for 100% of the shares corresponds to the asset tax value of Online Handels AG of CHF 6,500,000.

The two acquiring shareholders would like to pay themselves a gross salary of CHF 100,000 each per year. They cautiously estimate the annual profit of Online Handels AG after shareholder salaries and after taxes at approximately CHF 1,000,000, of which they would like to distribute approximately CHF 800,000 as a dividend each year.

Questions

1. Should S. Scheu and M. Mutig hold the shares of Online Handels AG directly or would an acquisition by a newly founded holding company be more efficient from a tax point of view?
2. Would it be more advantageous for S. Scheu and M. Mutig to set up a new holding company each?
3. How is the question of the level of shareholder salaries versus dividend payments to be answered from a tax and social security perspective?

Case study 3

Management buy-in

Facts

The owner and managing director of IT-Holding AG, Zug, Mr. Rudolf Ruhig, retires from business life. IT-Holding AG has three holdings of 100% each in IT-Software AG, IT-Support AG and Immo AG.

The up-and-coming IT specialist Jakob Jung is interested in acquiring IT-Holding AG, but is still reluctant to do so after reviewing the balance sheets and in view of the high sales price of around CHF 8 million.

IT-Holding AG has generated comparatively high profits in recent financial years, but has not distributed these as dividends due to its cautious distribution policy, which means that it has relatively high equity capital in view of the size of the company. In addition, the balance sheet of the subsidiary Immo AG includes an apartment building in Baar with considerable hidden reserves and a good return. Mr. Ruhig would like to take over this property in order to cover part of his future living costs from the rental income.

The key data of the apartment building in Baar are as follows:

The consolidated balance sheet of IT-Holding AG as of 31.12.2019 is as follows (in TCHF):

Questions

1. Under what conditions would a tax-neutral restructuring be possible with regard to the sales transaction?
2. Are other alternatives conceivable and what are the tax consequences?

Case study 4

Takeover by strategic investor (M&A transaction)

Facts

The internationally active, German Focus AG with headquarters in Frankfurt a.M. is interested in acquiring Optima Holding AG, Wollerau/SZ. This company is held by Oscar Optimierer, based in Feusisberg/SZ, and has been very successful in management consulting for years.

The consolidated balance sheet of Optima Holding AG as of December 31, 2019 is as follows (in TCHF):

The purchase price offered by Focus AG for the acquisition of all shares in Optima Holding AG amounts to CHF 12,000,000, of which CHF 8,000,000 is to be paid at the closing of the transaction. The remaining CHF 4,000,000 will be paid to Mr. Optimierer over the next four years as so-called earn-out payments, provided that key KPIs are achieved or even exceeded by the target group. Oscar Optimierer has also agreed to serve as CEO of Optima Group until the end of 2024. The parties agree that his future salary and the expected bonus will be at least equal to the average of the total remuneration of the past three years.

Questions

1. Which tax aspects have to be considered from Focus AG's point of view:
   a) In case of a direct acquisition of the shares in Optima Holding AG?
   b) In case of an acquisition of the shares by means of a newly founded acquisition company?
   c) How would the case be treated if Focus AG is based in Jersey and establishes a Swiss acquisition company for this transaction?
2. How is a possible bitcoin loan with an interest rate of 20% to the acquisition company to finance the purchase price to be treated for tax purposes?
3. How are the earn-out payments expected to be owed qualified for tax purposes?
4. How can the profits generated by Optima Holding AG be repatriated to Germany in a sensible way?

Case study 5

Takeover by strategic investor (M&A transaction)

Facts

Sensational AG, founded in 2014 by Zug-based Susan Smart, is active in the field of Artificial Intelligence and Blockchain Technology and is on the verge of an international breakthrough. The American company Supersoft Inc. is interested in taking over Sensational AG and at the same time the current top management of the target company (which has not previously held an interest in Sensational AG) will participate. The eligible managers are resident in the cantons of Zug, Zurich and Aargau.

Questions

1. How is an investment of Sensational AG's top management in this company to be treated for tax purposes?
2. What are the financing options for the transaction for the newly founded Schweizer Kauf AG of Supersoft Inc.
3. The tax officer of Supersoft Inc. would like to keep the group tax burden low even after the acquisition of Sensational AG and asks for possibilities to "push down" acquisition costs and third party debts as far as possible on Kauf AG and/or Sensational AG. What has to be considered?

Case study 6

Takeover by strategic investor (M&A transaction)

Facts

Hans Huber from Zug is the long-time owner of all shares of Huber Handels AG. The company ceased its trading activities several years ago. Since then business operations have not been resumed.

On 1 July 2020, Hans Huber sells all shares in Huber Handels AG to Samuel Schlau from Zurich at a price of CHF 300'000. Mr. Schlau immediately starts his new company ABC-AG and distributes products of Chinese origin in Switzerland through the acquired company.

Balance sheet of Huber Handels AG as per 31.12.2019 (in TCHF):

Variant

Huber Handels AG has a balance sheet loss of CHF 150'000, which also corresponds to the tax loss carried forward (expiring at the end of 2021). The purchase price offered by Mr. Schlau for 100% of the shares amounts to CHF 200'000.

Balance sheet of Huber Handels AG as per 31.12.2019 (in TCHF):

Sub-variant

There will be no sale to Samuel Schlau. Hans Huber keeps the Huber AG and becomes a new consultant.

Questions

1. How will the sale be assessed from a legal and tax point of view (both de lege lata and de lege ferenda)?
2. What are the tax consequences for a company with intact equity?
3. What tax consequences result from the variant of the facts?
4. What tax consequences result from the sub-variant?