Workshop by Laïla Rochat and Sarah Busca Bonvin at the ISIS seminar on November 6, 2024, entitled "Restructuring real estate: a selection of case studies".
Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (French)Ms. Baud, an executive at a bank, inherited in 2003, as part of her father’s estate (he was a teacher), a building located in Geneva on the lakefront, comprising both commercial and residential units.
In 1998, her father had acquired the shares of the company Chantemerle (then the owner of the building) and had liquidated the limited liability company (SI) on June 10, 2003, shortly before his death. At the time of the inheritance, the building’s mortgage debt amounted to 30%.
In 2018, Ms. Baud decided to improve the profitability of her property, which had not undergone any renovations for over 40 years. To this end, she began renovation work over a period of more than four years, financed 100% by a mortgage loan. As of December 31, 2022, the total debt-to-value ratio stands at 75%.
Because the renovations were extensive, the leases were terminated and new leases were signed upon completion of the work, with increased rent. This resulted in an increase in the rental income, which now totals CHF 2,000,000.
Ms. Baud’s tax advisor convinces her to hold her property through a company (hereinafter: the “SI”) in order to optimize her tax situation.
In 2003, Ms. Müller received, as a gift from her father, a building located in Geneva comprising both commercial and residential units.
In 2016, Ms. Müller decided to use the Airbnb platform to rent out certain apartments and improve the profitability of her property.
Considering that this form of rental is significantly more profitable, she decided, at the end of 2018, to renovate the apartments and began major construction work financed entirely by external funds. After four years of construction, all of the apartments are rented out on the Airbnb platform.
Same facts.
However, since Ms. Müller no longer wishes to pay a commission to the Airbnb platform, she forms a company, Sweet, in which she holds 100% of the equity capital and which is responsible for (i) marketing the rental of the units, (ii) providing ancillary services such as cleaning, and limited hospitality services consisting of beverage service and light in-room dining.
Ms. Müller’s tax advisor convinces her to hold her property through a company (hereinafter: the “SI”) in order to optimize her tax situation, i.e., by reducing the tax on (undistributed) real estate income and to fully benefit from the tax shield.
Mr. Arnaud, a resident of the Canton of Vaud, owns a property in the Canton of Vaud that he holds as part of his private assets. He acquired this property over 25 years ago for CHF 1,000,000. In January 2025, he plans to hold this property indirectly through a company to be incorporated. The company is incorporated with a share capital of CHF 100,000 paid in through the contribution, with the remaining amount constituting a share premium of CHF 2,900,000, as the property is valued at CHF 3,000,000 at the time of the contribution (the appraised value being the market value).
Mr. Arnaud first incorporates the company with CHF 100,000 paid in cash and then contributes the property located in the canton of Vaud as a “non-refundable contribution” recorded in the “Other Reserves” account. The notarized contribution agreement sets a price of CHF 3,000,000 for the property; the entire amount is credited to “Other Reserves.” What is the outcome?
After having his property appraised at a value of CHF 3,000,000, Mr. Arnaud enters into a notarized deed providing for the contribution of the property for CHF 1,000,000 as part of the company’s formation. The contribution is made in exchange for the creation of share capital of CHF 1,000,000.
This is a continuation of Case Study No. 3 above, except that this time, Mr. Arnaud’s property is located in the canton of Geneva and Mr. Arnaud is a resident of Geneva.
After contributing his property located in the canton of Geneva to his company, ASA, also based in Geneva, Mr. Arnaud decides to contribute ASA to an existing company in which he is a 100% shareholder and which is active in the production of high-end audio systems (Hi-Fi SA, in Geneva). Mr. Arnaud holds shares in both ASA and Hi-Fi SA.
ASA’s financial statements are as follows at the time of the contribution to Hi-Fi SA:
The acquisition cost of the building by ASA was CHF 3,000,000.
Hi-Fi SA’s financial statements are as follows at the time of the contribution from ASA:
Mr. Arnaud sold the shares of ASA to Hi-Fi SA for CHF 6,200,000 after holding the ASA shares for two years. The sale price is recorded as a vendor credit in favor of Mr. Arnaud. Hi-Fi SA’s post-acquisition financial statements are therefore as follows:
What about the sale of the ASA shares for CHF 6,200,000?
What about the sale of ASA shares at their par value including the premium (with a vendor credit corresponding to Hi-Fi SA’s liability)?
Ms. Marchand, a French national, moved to Geneva over 20 years ago. However, she has retained a second home in Provence, which she owns through a French civil company, SCI les Vents.
Ms. Marchand did not opt for the corporate tax regime with regard to SCI les Vents. Consequently, the SCI is considered a pass-through entity under French law.
The value of the SCI is EUR 2,000,000. During the months she is not staying there, she rents the property to friends and family, which generates annual income for the SCI of approximately EUR 60,000. The SCI does not record any amount for Ms. Marchand’s use of the property.
Ms. Marchand has declared and paid in France the real estate wealth tax (hereinafter: "IFI"), as well as the income tax on the returns generated by the SCI. Furthermore, the annual income has always been credited to Ms. Marchand’s checking account.
She is now considering transferring her shares to her children, who are domiciled in Switzerland. However, she would like to avoid the gift taxes due in France. To this end, on the advice of her tax advisor, her children will form a new company based in Switzerland that they will own; this company would purchase the shares of the SCI. The acquisition would be financed through a loan granted by Ms. Marchand to the newly formed company.
