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The issue of company transfers has been the subject of much discussion in recent years.
The essence of this issue lies in the fact that our tax system is based on the principle of the exemption of capital gains from private assets. Typically, a shareholder who sells his company's shares does not pay tax on the gain.
However, the tax authorities have found several ways to limit the exemption of capital gains. It is possible to distinguish in particular three axes with which you should be vigilant.
Belonging to commercial assets
If an asset is considered as belonging to commercial (as opposed to private) assets, the capital gain resulting from its alienation is considered as income from an independent activity, subject to income tax as well as to social insurance. This is the famous case of the "quasi-professional trading of securities", for those who carry out stock exchange operations with the risk profile of an entrepreneur. This jurisprudence was originally applicable to the trade of real estate and was then applied to numerous operations, such as the sale of car collections, paintings or wine. For the sale of company shares, a close link between the activity of the company and an independent gainful activity of the taxpayer led the Federal Court to recognize the commercial character of the movable assets.
Indirect partial liquidation
Our system is also based on the principle of economic double taxation, i.e. tax on profits at the level of the company and income tax at the level of the shareholder, whether in the form of salary, open or concealed dividend distribution. These two principles have of course forced the tendency to hoard profits within the company and to seek the path of sale of shares at the time of cessation of activity. The tax authorities, well assisted by the Federal Court, have seen this as a case of abuse and have recharacterized many of these sale operations as fully taxable wealth income by means of various tools.
This is the case of the indirect partial liquidation: the taxpayer sells "the full purse" (i.e. the company full of cash and reserves) which belonged to his private wealth, to a buyer who will hold the shares in his commercial wealth, thus allowing an exemption of the dividend. From now on, the use of the distributable profits at the time of the sale is forbidden for 5 years.
Transposition
Also known as a "self-sale", the transposition has a similar purpose to the indirect partial liquidation: to transfer the shares of a company that one owns directly to another company, owned more than 50% by the same shareholder. If the sale takes place above the nominal value, the difference is taxed as income tax. Thus, the sold company will be able to distribute its dividends to the acquiring company without the latter paying any tax. The income acquired in this way is used to repay the sale price to the ultimate shareholder.
Even if Reform II has softened the consequences of such recharacterizations thanks to the partial taxation of dividends (although it is better to live in Schwyz than in Vaud...), it is still catastrophic for the entrepreneur to sell his company and to see all or part of his gain, which constitutes in a way his retirement capital, go to taxes, whereas an appropriate tax planning would have allowed him to realize a totally exempted gain. The same applies to managers who have participated in a management buy-out.
Our expertise in this area is based on handling such cases on a weekly basis. We have been able to see the evolution of the trends, have closely followed the jurisprudential and legislative evolutions and have participated in numerous conferences and writing articles on the subject. It goes without saying that in our hands, you will be dealing with the best specialists in the field. We will be able to guide you efficiently in order to avoid the many traps that are set around the transfer of a business and the inconvenience of an unexpected, and very painful, taxation of your capital gain.
