ACQUISITIONS (FROM THE BUYER'S PERSPECTIVE)
Tax treatment of different acquisitions
What are the differences in tax treatment between an acquisition of stock in a company and the acquisition of business assets and liabilities? Both the seller and the acquirer face different tax implications depending on whether an acquisition is carried out by way of acquisition of stock (share deal) or acquisition of business assets and liabilities (asset deal).
The main differences concern the tax treatment of capital gains, respectively realised income on the transfer of assets, transfer of historic tax liabilities, step-up in basis of the target's underlying assets, transfer of the tax loss carry-forward and transaction taxes.
In an asset deal, the seller will generally be taxed on the realised income (ie, realised hidden reserves) at the applicable corporate income tax rate. An acquirer often prefers an asset deal, as in this case the tax risks transferred with the acquired business are very limited. Generally, only liabilities in respect of social security and real-estate taxes (if applicable) are inherited. Should an asset deal be followed by a liquidation or factual liquidation of the seller, the historic income, capital, VAT and customs tax liabilities of the acquired business may be transferred to the acquirer as part of tax succession. Further, a step-up in basis and tax-deductible depreciation are, in principle, possible (see question 2) and interest for acquisition debt may be more easily set off against taxable income of the acquired business. Income tax loss carryforwards of the business remain with the seller. The asset transfer is generally subject to VAT, currently at 7.7 per cent, on the transfer of taxable goods and goodwill. Alternatively, a VAT notification procedure, respectively in some cases, must be used. This means that no Swiss VAT is charged on the transaction, but the transaction is notified using a specific form. Finally, should real estate be transferred, special cantonal or communal real estate gains taxation for the seller and real estate transfer taxes may need to be considered.
Sellers typically prefer share deals because of the privileged tax treatment of capital gains in Switzerland (see question 15). The acquirer of shares in a Swiss company assumes potential historical tax risks and the tax book values of the target company, since both remain unchanged in the target company. The goodwill reflected in the share price generally cannot be written off against taxable profits. The acquirer's interest expenses on acquisition debt cannot be directly set off against taxable income of the target, but require additional structuring (see question 10). The acquisition of a partnership interest is, from an income tax perspective, generally treated like an asset deal and results in a step-up for the acquirer.
In the case of a share deal, the target company remains entitled to its tax loss carry-forward, if any, and can set it off against taxable profit during the ordinary tax loss carry-forward period of seven years (see question 7 regarding the impact on tax...