The Abolishment Of Holding Company Status: Measures To Mitigate The Tax Burden

Author:Dr. Marino Baldi and Lukas Scherer
Profession:Prager Dreifuss

On January 1 2020, the corporate tax reform entered into force. The Swiss cantons have some margin of discretion in the implementation of the legislation. Differing cantonal pecularities and characteristics are, hence, to be expected.

With the enactment of the corporate tax reform, the cantonal tax privileges for holding, domicile and mixed companies were abolished. To mitigate the additional tax burden, companies that benefitted from privileged tax treatment until the end of 2019 have the option of disclosing their hidden reserves tax-neutrally and depreciating them over a period of 5-10 years ('old step-up'). Alternatively, the affected companies can apply for an order by the competent tax administration to determine the amount of hidden reserves. These hidden reserves can then be taxed at a special tax rate over a period of 5 years in case of realisation ('special rate solution'). These two measures are both to be implemented at cantonal level. The treatment of hidden reserves is regulated by the cantonal law to some extent. Other questions, however, remain unanswered, in particular, the handling of value recoveries on depreciated participations and the treatment of non-adjustable values on assets and liabilities after change of tax status. In this article, issues are identified, and their consequences and potential solutions are discussed.

Old step-up


If, in the context of a change of tax status, the previously privileged taxed company (holding, domicile or mixed company) chooses the option of applying the old step-up, it can disclose its hidden reserves accumulated during the privileged tax status as well as the created goodwill tax-neutrally in its tax balance sheet. The disclosed hidden reserves can then be depreciated over a specific period of time (5-10 years, varying fromcanton to canton). Depending on the canton, either a dynamic or a linear depreciation may be chosen. These depreciations are subject to cantonal tax relief restrictions. The cantons designed - to a certain extent -the regulations according to their own needs and interests. Therefore, the regulations vary greatly from canton to canton (while e.g. the canton of Zug provides for an overall tax relief restriction of 70%, the canton of Basel-Stadt applies an overall tax relief restriction of 40%).

For companies that benefitted from the holding tax status, the old step-up situation is different with respect to participations, portfolio shares and non-adjustable values on assets and liabilities after change of tax status.


In case of qualified participations (i.e. at least a 10% stake, rights to at least 10% of the...

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