Relevant court ruling by the Swiss Federal Administrative Court on loss recognition
However, the FTA has partially appealed the ruling to the Federal Supreme Court. Thus, the situation currently exists that the FTA had to adjust its practice regarding art. 12 StG, but no change in practice has yet taken place with regard to the exception pursuant to art. 6 para. 1 lit. k StG.
Background
The creation and increase of the nominal value of participation rights and the contributions by the direct shareholder to the company are in principle subject to issuance stamp duty in the amount of 1 per cent. However, a company in need of a restructuring is exempt from the stamp duty insofar the (one-time) restructuring exemption limit of CHF 10 mio. can be claimed (art. 6 para. 1 lit. k Federal Law on Stamp Duties (Bundesgesetz über die Stempelabgaben, «StG»)) or, if the exemption limit has already been exhausted, the conditions for the waiver pursuant to art. 12 StG (“obvious hardship”) are met.
As a restructuring measure, contributions by shareholders are regularly made which, for the purposes of withholding and income taxes, generally qualify as capital contribution reserves and could therefore later be returned to the shareholders tax-free. In order for such contributions to be recognised as capital contribution reserves, they must, among other things, be entered in a separate account in the bookkeeping, shown separately in the balance sheet and reported to the Swiss Federal Tax Administration (“SFTA”) with form 170.
According to the previous practice of the SFTA, the exemption from the issuance stamp duty in the case of a restructuring pursuant to art. 6 para. 1 lit. k StG) or a waiver pursuant to art. 12 StG was only granted if the existing losses were simultaneously offset against the restructuring contributions made and eliminated in the balance sheet. If the company wanted to make use of the exception or the waiver, it had to forego the creation of capital contribution reserves in return, since they only legally exist if they are shown separately in the accounts. This practice has long been criticised by part of the doctrine as being wrong from a tax system perspective.
New Jurisprudence
In its ruling A-5073/2020 of 29 November 2021, the Swiss Federal Administrative Court has now finally contradicted this long-standing practice of the SFTA. According to the Swiss Federal Administrative Court, the fact that capital contribution reserves can be repaid free of withholding tax may not have any influence on whether art. 6 para. 1 lit. k StG and art. 12 StG apply, because the issuance stamp duty and withholding tax are two separate types of tax. It therefore follows that the losses do not have to be booked out against contributions in the balance sheet in order to claim the tax-exempt amount under art. 6 para. 1 lit. k StG or for the waiver of the issuance stamp duty under art. 12 StG to apply.
The ruling is legally binding regarding the waiver of the issuance stamp duty under art. 12 StG. However, the SFTA has filed an appeal in public law matters in connection with the claiming of the tax-exempt amount under art. 6 para. 1 lit. k StG.
Implications in practice
The FTA has adjusted its practice to the effect that companies in need of reorganization no longer have to choose between waiver of the stamp duty and the creation of a capital contribution reserve repayable free of withholding tax in order to claim waiver pursuant to art. 12 StG. Thus, no offsetting of losses is required to apply art 12 StG.
If the company in need of reorganization wants to make use of the stamp duty exemption pursuant art. 6 para. 1 lit. k StG and create reserves from capital contributions at the same time, it is recommended that it pays the stamp duty with reservation until the final judgment of the Federal Supreme Court is available. In this way, it can reclaim the issue tax paid under reserve should the FTA be defeated before the Federal Supreme Court.
We will be happy to keep you informed in this regard.
If you have any questions, please do not hesitate to contact our experts.
