We recently had the opportunity to facilitate a subsidiary absorption, also known as an Up-Stream Merger. In this case, a subsidiary was completely taken over by its parent company and subsequently dissolved. The parent company had acquired the subsidiary two years prior at a price exceeding the subsidiary’s equity.
Civil Law Implementation
The merger was executed as a simplified merger pursuant to Art. 23 para. 1 FusG. This regulation applies, among other conditions, when the parent company holds 100% of the subsidiary.
Tax Issues
- Tax Neutrality: The transfer of hidden reserves was tax-neutral since the book values were maintained and the tax liability remained in Switzerland.
- Merger Loss: Due to the difference between the higher book value of the subsidiary’s participation and the lower excess of assets, a merger loss occurred. This (economic) merger loss was recorded as goodwill. The goodwill can now be amortized over 5 years, though these amortizations are not tax-deductible.
- Loss Carryforwards: The unused loss carryforwards of the subsidiary were transferred to the parent company and can thus continue to be utilized.
- Withholding Tax Merger Loss: A withholding tax merger loss was present because the book value of the subsidiary at the time of the merger exceeded the nominal value and the capital contribution reserves. This required notification to the Federal Tax Administration (ESTV) through an internal administrative procedure.
VAT Aspects
The application of the notification procedure according to Art. 38 para. 1 lit. a MWSTG was mandatory.
As with other restructuring processes, subsidiary absorptions should be planned early to ensure efficient and goal-oriented collaboration among the company’s personnel, the fiduciary company, and other specialists involved. In this case, the cooperation was excellent, and we were able to efficiently handle the case.
