Company - International tax law 2017 - Switzerland/Germany

Case 1: Payment from the reserve for capital contributions

Facts

A (natural person resident in Switzerland, Canton of Zurich) and B (natural person resident in Germany) hold 40% and 60% of the shares in CH-AG, respectively. Both hold the shares as private assets. CH-AG plans to distribute a dividend of CHF 1 million from voluntary retained earnings.

Questions

1. How is the payment of the dividend to be assessed in terms of withholding tax (capital gains tax)?
2. How is the dividend at A and at B to be assessed for income tax purposes?
3. How and to what extent can withholding tax be claimed back or offset?

Additional facts (subsequent period)

In the following year, the CH AG makes a loss that uses up all retained earnings. To enable a distribution to be made nevertheless, an amount of CHF 1 million is to be paid out from the statutory capital reserves - which qualify as reserves from capital contributions for tax purposes.

Question

How is the payment at A and at B to be assessed from the perspective of income and withholding tax?

Case 2: Cross-border loss relief for permanent establishments

Situation A -Swiss Outbound

CH-AG is an operationally active stock corporation in Switzerland. CH-AG has established a production facility in Germany, which went into operation at the beginning of 2015. Separate accounts are kept for the parent company and the production facility. In the tax period 1.1. - 31.12.2015, CH-AG generates a net profit before tax of CHF 1 million - excluding the annual result of the permanent establishment. By contrast, the permanent establishment accounting in Germany shows a net loss for the year of CHF 200,000.

Question (tax period 1.1. - 31.12.2015)

1. How is the net loss for the year to be treated for tax purposes in Germany?
2. Is it possible to offset the annual loss of the German permanent establishment against the net profit in Switzerland according to DBG and StG-ZH?

Additional facts (subsequent period 1.1. - 31.12.2016)

In the tax period 1.1. - 31.12.2016, CH-AG continues to generate a net profit from its own business activities of CHF 1 million. For the first time, the permanent establishment generates a pre-tax profit for the year of CHF 300,000.

Question

1. How is the net income for the year to be treated for tax purposes in Germany?
2. How does the annual net profit of the German permanent establishment in the CH-AG have a tax effect according to DBG and StG-ZH?

Situation B -Swiss Inbound

D-GmbH is an operationally active corporation with its registered office in Germany. In Switzerland, D-GmbH has set up a production facility which will be put into operation at the beginning of 2015. In the tax period 1.1. - 31.12.2015, D-GmbH achieves a pre-tax profit before tax of CHF 1 million - without taking into account the annual result of the permanent establishment. In contrast, the permanent establishment accounting in Switzerland shows a loss of CHF 200,000.

Question (tax period 1.1. - 31.12.2015)

1. How is the loss to be treated for tax purposes in Switzerland according to DBG and StG-ZH?
2. Is it possible to offset the loss of the Swiss permanent establishment against the net income for the year in Germany?

Additional facts (tax period 1.1. - 31.12.2016)

In the tax period 1.1. - 31.12.2016, D-GmbH continues to generate a net profit from its own business activities of CHF 1 million. The permanent establishment generates a pre-tax profit for the year of CHF 300,000 for the first time.

Question

1. How is the net income for the year to be treated for tax purposes in Switzerland under the DBG and StG-ZH?
2. How does the annual net profit of the Swiss permanent establishment affect D-GmbH for tax purposes?

Case 3: Financing of a company acquisition

Situation A -Swiss Outbound

CH-AG, which is based in Switzerland, plans to acquire the German D-GmbH. The purchase price is € 60 million, D-GmbH is very profitable. The CH-AG's principal bank would be prepared to finance the full purchase price at an interest rate of 5%.

Question

If the CH corporation acquires D-GmbH - to what extent can the CH corporation use the expenditure for interest payments to the house bank in a tax-effective manner?

To what extent can the tax situation be optimized if the CH corporation founds the M-GmbH with registered office in Germany specifically and exclusively for the purpose of acquiring the D-GmbH, if the D-GmbH acts as the purchaser and if the acquisition

(a) by means of a loan from the principal bank or
(b) by means of a shareholder loan from the CH corporation, which the latter has taken up with its principal bank,

financed.

Additional facts

Situation as above. However, CH-AG intends to make the acquisition through a German-based M-GmbH & Co. KG, in which it holds all shares. The acquisition is to be fully financed by debt, with the CH AG taking up the loan and providing M-GmbH & Co. KG the total amount as equity for the acquisition of the shares in D-GmbH.

Question

How can the interest on debts of the CH corporation from the financing of the capital contribution to M-GmbH & Co. KG be offset against the operating result of D-GmbH in Germany in a tax-effective manner?

Are there any other possibilities of claiming this debt interest in Switzerland with tax effect?

Situation B - Swiss inbound with German subsidiary

A who is resident in Switzerland holds the CH corporation as part of his private assets. The CH-AG is a pure holding company and owns all shares in D-GmbH, which is domiciled in Germany. The M-AG with its registered office in Germany is very interested in acquiring D-GmbH directly or indirectly. The purchase price amounts to € 60 million, D-GmbH will achieve a "black zero" in terms of earnings over the next three years. M-AG's principal bank would be prepared to finance the full purchase price with outside capital at an interest rate of 5%. M-AG is operationally active and generates a pre-tax profit for the year of € 3 million, the tax EBITDA amounts to € 4 million. The business of M-AG is completely self-financed.

Question

A is only prepared to sell D-GmbH indirectly in its present structure. This means that he would only sell the CH AG, which holds all shares in D-GmbH. What are the reasons?

1. How can M-AG claim the debt interest from the acquisition of the CH-AG in Germany with tax effect?
2. How can M-AG claim the debt interest from the acquisition of the CH-AG in Switzerland with tax effect?
3. If neither of these is possible - is there a possibility of directly offsetting the operating results of D-GmbH against the interest on debt?