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view in original language (German)The tax treatment of employee shares, the application of minimum taxation (Pillar II) and the valuation of securities and participations in the balance sheet raise complex demarcation issues in practice - particularly in the light of recent Federal Supreme Court rulings. Based on practical case studies, Stefan Jaggi and Daniel Küttel show how treasury shares are to be treated for profit tax purposes when sold to employees, which Swiss group company is considered a business unit subject to supplementary tax and under which conditions value fluctuation reserves and value adjustments on participations are recognized for tax purposes. It also deals with the calculation of property gains tax in the case of hidden capital contributions among majority shareholders. The solutions provide you with the necessary tools to implement current developments in profit tax, Pillar II and real estate gains tax in practice.
X. AG reports treasury shares on its balance sheet with an acquisition cost of CHF 1,000 and sells them to its employees at a price of CHF 200. The fair market value of the treasury shares at the time of sale is CHF 1,000.
How is the sale of employee shares treated by X. AG for income tax purposes?
X. AG reports treasury shares on its balance sheet with a cost basis of\ CHF 1,300 and sells them to its employees at a price of CHF 200. The fair market value of the treasury shares at the time of sale is CHF 1,000.
How is the transfer of employee shares treated for income tax purposes at X. AG?
X. AG reports treasury shares on its balance sheet with a cost basis of\ CHF 900 and sells them to its employees at a price of CHF 200. The fair market value of the treasury shares at the time of sale is CHF 1,000.
How is the transfer of employee shares treated for income tax purposes at X. AG?
X. AG is the parent company and reports treasury shares on its balance sheet. The employees of the subsidiary Y. receive shares in X. AG.
What changes occur regarding the transfer of employee shares for income tax purposes?
X. AG is the parent company, and the subsidiary Y. AG reports treasury shares of X. AG on its balance sheet. Employees of the subsidiary Y. AG receive shares in X. AG.
What changes occur regarding the transfer of employee shares for income tax purposes?
X. AG is the ultimate parent company of the X Group with consolidated revenue exceeding EUR 750 million and is subject to the provisions of minimum taxation (Pillar II). X. AG, headquartered in the Canton of Zurich, wholly owns Y. AG, headquartered in the Canton of Zurich, and Z. AG, headquartered in the Canton of Geneva. Z. AG has a foreign subsidiary, T. AG, with an effective corporate tax rate of less than 15% (“Low-Taxed Constituent Entity,” LTCE).
Scenario 1:
The foreign T. AG is not an LTCE.
Which business unit in Switzerland is subject to supplementary tax for 2024 and 2025?
X. AG, based abroad (country with IIR), holds 100% of Y. AG, based in the Canton of Zurich, and Z. AG, based in the Canton of Geneva.
Variant 1:
During the course of 2024, Z. AG acquires a subsidiary, T. AG, which is resident abroad.
Which business unit in Switzerland is subject to supplementary tax for 2024 and 2025?
X. AG, based abroad (in a country without a double taxation treaty), holds 100% of Y. AG, based in the canton of Zurich, and Z. AG, based in the canton of Geneva.
Scenario 1:
Z. AG acquires a subsidiary, T. AG, which is resident abroad.
Scenario 2:
Z. AG acquires a subsidiary, T. AG, which is based abroad, and X. AG is based in the U.S.
Scenario 3:
Z. AG is not established until after the start of the fiscal year.
Which business entity in Switzerland is subject to supplementary tax for 2024 and 2025 (and for Scenario 3 in 2026)?
In its 2019 financial statements, A. AG accounted for its securities—as in previous years—at market value as of the balance sheet date in accordance with Art. 960b para. 1 of the Swiss Code of Obligations (CO). This resulted in a capital gain of CHF 560,823 for 2019. At the same time, A. AG increased its existing valuation reserve by the same amount, from CHF 1,087,227.34 to CHF 1,648,049.95. This neutralized the capital gain resulting from the market valuation as of the balance sheet date.
The Zurich Cantonal Tax Office calculated the total fair value reserve (i.e., not merely its increase in 2019).
In the appeal proceedings, the Administrative Court denied the tax deductibility of fair value reserves, even though such reserves may be established under commercial law pursuant to Art. 960b para. 2 of the Swiss Code of Obligations (OR). However, the Administrative Court considered offsetting the entire value fluctuation reserve to be contrary to good faith, as the value fluctuation reserves in previous periods had been partially examined in detail and recognized, so that in the 2019 tax period only the new formation of fluctuation reserves in the amount of CHF 560,823 was subject to taxation.
In an appeal to the Federal Supreme Court, A. AG requested that the fluctuation reserve be recognized in full, or alternatively, that the fluctuation reserve formed in 2029 be accepted on a flat-rate basis, taking into account average volatility.
Is the recorded fluctuation reserve at A. AG accepted for tax purposes?
The holding company A. AG was founded in 2001 and has held a 12.46% stake in C. AG since May 2001; in April 2015, the stake increased to 14.25% due to a capital reduction. The investment was originally recorded at market value (= stock market price) and accounted for using the market valuation method through the 2013/2014 fiscal year. After the end of the 2013/2014 fiscal year, A. AG changed its valuation method from market valuation to valuation based on the lower-of-cost-or-market principle and recorded the investment at its previous book value. In the subsequent years, the stock market price was higher in each case. Consequently, the Zurich Tax Office applied a mandatory revaluation in accordance with Art. 62 para. 4 DBG to the higher stock market price in the subsequent periods (2015/2016 and 2016/2017).
A. purchased a single-family home in the municipality of X. in the canton of St. Gallen (SG) at a forced auction on December 12, 2019, for CHF 150,000. The market value of the single-family home was estimated at CHF 306,000 in the official appraisal in 2013. On April 24, 2020, A. sold the property for CHF 152,000 to B. AG, of which he is the majority shareholder and chairman of the board of directors.
Prior to the assessment of the real estate gains tax, B. AG sold this property on April 23, 2021, for CHF 360,000 to a third party.
The tax office of the Canton of SG determined the taxable real estate gain realized by A. from the sale to B. AG in its assessment decision of November 17, 2021 (based on a sale price of CHF 360,000 minus the purchase price of CHF 150,000 and incidental costs of CHF 1,982).
Was the real estate gains tax in the Canton of St. Gallen calculated correctly in the present case?
