Restructuring and reorganization, including replacement of real estate

1st case - introductory case

Procurement of replacements for operating companies

X-AG, an operating company with its registered office in Zurich, purchased an operating property (also in Zurich) in 2010 for CHF 3,200,000. During the period of ownership, X-AG capitalized value-enhancing expenditures in the amount of CHF 800,000 and took ordinary depreciation in the total amount of CHF 600,000. The carrying amount as at 31 December 2019 is CHF 3,400,000.

In 2020, X-AG sells the business property for CHF 5,000,000 for the purpose of reinvesting in a new business property in the same year. The following options are being examined for this purpose:

Variant A

Purchase of a business property in Zurich at a price of CHF 6,000,000.

Variant B

Purchase of a business property in Zurich at a price of CHF 3,500,000.

Variant C

Purchase of a business property in Zurich at a price of CHF 4,000,000. In addition to the purchase price, value-enhancing expenses of CHF 500,000 are expected.

Questions

1. What are the consequences for X-AG in terms of direct federal tax?
2. What are the consequences for X-AG in terms of real estate profit tax?
3. What are the consequences for the X-AG in terms of state and municipal taxes?

2nd case - property management company and property dealer

Procurement of replacements for real estate companies

X-AG, a pure property management company based in Berne, has a broad portfolio of owner-occupied and third party-rented properties in Berne. In 2020, X-AG is considering replacing its administrative headquarters on the one hand and an investment property on the other.

Questions

1. How do you assess the replacement of the administrative headquarters?
2. How do you assess the replacement of an investment property?
3. Does your assessment change if X-AG is a real estate broker?

Supplement to the facts

X-AG belongs to the X Group and holds all properties of the X Group. This includes the Group headquarters and the properties of the X Group used for operations by other Group companies. It lets the properties to the other Group companies at market rents.

Question

4. Does the factual supplement change your assessment?

Case 3 - Update on the ISIS Seminar of March 10, 2016, Case 6

Replacement procurement for real estate investments

In 2010, X-AG, an operating company domiciled in Liestal, purchased a 60 percent interest in a real estate company ("Immo-AG I") for CHF 600,000. Immo-AG I holds an apartment building in Liestal.

In 2020, X-AG sells its investment for CHF 1,000,000. Prior to the sale, value adjustments of CHF 60,000 were made. The income tax value of the investment before the sale is CHF 540,000, the cost price per sale is CHF 600,000.

In the same year 2020, X-AG again purchases a share in a real estate company ("Immo-AG II") with properties in Liestal, namely a 60 percent share for CHF 900,000.

Questions

1. What are the consequences for X-AG in terms of direct federal tax?
2. What are the consequences for X-AG in terms of real estate profit tax?
3. What are the consequences for the X-AG in terms of state and municipal taxes?
4. What are the consequences for X-AG regarding the property transfer tax?
5. How do you assess the situation if the X-AG is domiciled in Luxembourg?

Supplement to the facts 1

Immo-AG I acquired the apartment building in 2010 for CHF 3,000,000. During the holding period, Immo-AG I made ordinary depreciations of CHF 300,000 and a one-off value adjustment of CHF 100,000.

Question

6. Will the sale by X-AG result in tax consequences for Immo-AG I?

Supplement to the facts 2

Immo-AG I sells the apartment building in 2021 for CHF 4,000,000. The profit tax value is CHF 2,600,000. Apart from the sale of the shareholding by X-AG, there were no other changes in the shareholder structure.

Question

7. What are the tax consequences for Immo-AG I on the sale in 2021?

4th case - spin-off of a real estate portfolio

Spin-off of a real estate portfolio from the operative business

X-AG, an operating company with headquarters and operational real estate in Basel, plans to separate its business operations from its real estate portfolio. To this end, the real estate portfolio is to be transferred to a newly founded subsidiary, which will subsequently be distributed to the shareholder of X AG (so-called "old-law demerger"). After the demerger, the properties will be rented to Group companies. The newly founded company will employ one person (full-time position) to manage the properties.

Variant A

The estimated target rental income is CHF 2,500,000.

Variant B

The estimated target rental income is CHF 1,900,000.

Variant C

The estimated target rental income amounts to CHF 1,500,000. In addition to the existing properties, X-AG was able to secure the right to purchase a further property. The estimated target rental income for this property is CHF 1,000,000.

Questions

1. What are the consequences for X-AG in terms of direct federal tax?
2. What are the consequences for X-AG in terms of cantonal taxes?
3. What are the consequences for X-AG in terms of real estate profit tax?
4. Are there any further tax consequences for the X-AG?

Case 5 - Restructuring of pension schemes

Replacement for legal entities

X Group has a pension fund in the legal form of a foundation ("X-PK") with its registered office in Lucerne. The purpose of the foundation is to provide occupational benefits for the employees of X Group and therefore X-PK is subjectively exempt from profit tax pursuant to Art. 56 lit. e DBG and § 70 para. 1 lit. e StG-LU. X-PK plans to transfer its real estate portfolio to a real estate investment foundation in return for surrendering 5 percent of the claims (participation) in the investment foundation.

Questions

1. What are the consequences for the X-PK in the direct federal tax?
2. What are the consequences for X-PK in state and municipal taxes?
3. What are the consequences for X-PK in terms of property gains tax?
4. What are the consequences for X-PK in terms of hand transfer taxes?
5. If there are further tax consequences for the X-PK