Swiss Supreme Court: tax-privileged quasi-merger status is only granted if the receiving company is issuing its own shares

Swiss Supreme Court denies qualification of a specific transaction as a quasi-merger and hence as a Swiss tax-neutral restructuring

In Switzerland, the quasi-merger is not formally stipulated under Swiss merger law. Yet, in Swiss tax practice, quasi-mergers typically qualify as tax neutral restructurings (“tax privileged” restructurings), if certain criteria are met.

According to Swiss Tax Administration Circular Letter No. 5, “Reorganisations”, a Swiss tax-privileged quasi-merger usually requires that the receiving company takes over at least 50% of the target’s voting power. In addition, the target’s shareholders may receive a maximum of 50% of the total consideration in cash for their previously held shares in the target. Consequently at least 50% of the total consideration must be paid in new shares (of the receiving company). Typically, the receiving company procures the shares for the share-exchange by way of a capital increase.

In the case at hand, individual A held 100% of the shares of X-AG and 50% of the shares in Y-AG as part of his private wealth. In 2007, A transferred his interest of 50% of Y-AG at book value to X-AG. Subsequently, A held his interest of 50% in Y-AG indirectly via X-AG.

In its decision of 10 June 2015 (2C_976/2014), the Swiss Supreme Court confirmed Circular Letter No. 5 and ruled that in the absence of an increase of the capital level of X-AG, the transfer of the Y-shares does not qualify as a quasi-merger for Swiss tax purposes. As a result, the difference between the market value and the book value of the 50% interest in the Y-shares was subject to Swiss stamp duty on the issuance of capital.

Companies and individuals engaging in quasi-mergers must therefore carefully structure a transaction in order to ensure qualification as a tax neutral reorganisation.

Published by

Stefan Schmid

Stefan Schmid
Partner, Tax & Legal Services
Birchstrasse 160
Postfach, 8050 Zürich
Tel. +41 58 792 44 82

Stefan Schmid is a corporate tax partner assisting companies in international tax matters, with a special focus on US, Asian and Swiss quoted groups. He graduated at the University of St. Gallen in Business Administration (lic.oec. HSG).

He has over 20 years of experience in assisting multinational groups in their international tax affairs. He further gained extensive experience in assisting groups that operate centralised business models.