When private holdings are sold to a personal holding company, the sale price can be qualified as taxable investment income under the title of transposition.
Such was the case again in a Federal Court decision dated April 20, 2023 (9C_679/2021).
What was the issue?
A taxpayer, along with partners, founded C. AG in the field of investment consulting. Later, they sold about 75% of the shares to Bank D. When Bank D. planned to sell its shares in C. AG to third parties a few years later, the taxpayer wanted to prevent this through a management buy-out (MBO) via his holding company, E. AG.
- First, he sold 4,203 shares of C. AG, which he held himself, to E. AG to make these shares available to his holding company, so that it could repay a loan after the MBO.
- The sale was made with the explicit intention of a quick resale, as reflected in the booking of the shares as current assets.
- E. AG held the shares only briefly and sold them at the purchase price.
Although the transfer to his own holding company was part of a multi-stage financing process, the Federal Court concluded that the sale constituted taxable investment income due to asset reallocation (transposition) and that there was no room for a tax-free capital gain.
What was decisive?
As a reminder: According to Art. 20a para. 1 lit. b DBG, the proceeds from the transfer of a participation held in private assets to a legal entity in which the seller holds at least 50% after the transfer are considered income from movable assets, provided the consideration exceeds the sum of the nominal value of the transferred participation and the reserves from capital contributions.
The Federal Court explicitly states:
- In the transposition stipulated in Art. 20a para. 1 lit. b DBG, an economic perspective is excluded. The statutory regulation has "objectified" the transposition fact, making the subjective motives of the involved parties irrelevant.
- If the conditions of transposition are met, taxable investment income is assumed, regardless of the actual purpose of the transaction.
Learnings
This decision makes it clear that – even if a transaction is divided into different stages and economically there is no "sale to oneself" intended – the sale of shares to one's own holding company must be critically examined under the title of transposition.
