Introduction
Are you planning to transfer your company shares to your personal holding company? While this may sound like a smart move to optimize your corporate structure, be careful! Transferring company shares can come with tax traps that you shouldn’t underestimate. One of the most significant of these traps is known as transposition (a reclassification of the transaction). But what exactly does it mean, and how can you avoid costly mistakes during this process?
What is Transposition?
Transposition refers to a tax-related process where company shares are transferred from your private assets to the business assets of a company in which you hold at least a 50% stake. This situation is common with personal holding companies, where you might own the majority or all of the shares.
Why is this important? Because when shares are sold from private assets, the gains are usually tax-free. However, in the case of a transposition, tax consequences may arise that could turn what was expected to be a tax-free transaction into taxable income. Understanding this distinction is crucial before proceeding with the transfer!
What are the tax consequences of Transposition?
The critical question when it comes to transposition is how the compensation your personal holding company pays for the transferred shares is taxed.
Beware oft he tax trap!
If the payment your holding company makes for the shares exceeds the sum of the nominal value of the transferred shares and any associated capital contribution reserves, the amount over this threshold will be classified as taxable income rather than a tax-free capital gain. This is a key distinction, as it can lead to unexpected tax liabilities.
Let’s look at an example:
Imagine shareholder A holds stakes in two companies:
- A. AG: 20% stake
- H. AG (Personal Holding): 100% stake
A now wants to transfer their 20% stake in A. AG to their personal holding company, H. AG, at fair market value. There are two options:
- Option 1: A sells the shares to H. AG at fair market value.
- Option 2: A contributes the shares to H. AG without compensation.
Option 1: Sale of the shares
If A decides to sell the shares, the first tax issue arises. The portion of the sale price that exceeds the nominal value of the shares and the associated capital contribution reserves is considered taxable income. In other words, no tax-free capital gain is realized! This principle applies not only to company shares but also to the transfer of securities portfolios that include company shares.
Option 2: Contribution of shares without compensation
What happens if A contributes the shares without compensation to H. AG? The tax consequences depend on how H. AG records the transaction:
- Taxable income will arise if H. AG creates capital contribution reserves from the contribution.
- Tax neutrality occurs if the contribution only results in the creation of other reserves (remaining reserves). This is known as the Agio solution, allowing the transaction to proceed without immediate tax liability, although latent tax liabilities remain for future distributions.
The right solution: How to avoid the Transposition trap
To avoid unexpected tax liabilities when transferring company shares from your private assets to your personal holding company, there are two key strategies:
1. The compensation paid by the holding company must not exceed the sum of the nominal value of the shares and any associated capital contribution reserves.
This means that the amount your holding company pays for the shares should be carefully calculated to avoid surpassing this threshold.
2. The receiving company should create other reserves (remaining reserves) rather than capital contribution reserves.
This approach, known as the Agio solution, ensures the transaction remains tax-neutral. By doing so, immediate tax liabilities are avoided, and any potential taxes are deferred to future distributions.
Conclusion
Be cautious when transferring company shares to your personal holding company
Transferring company shares (or securities portfolios containing company shares) from your private assets to a personal holding company can carry significant tax risks, especially if the issue of Transponierung is overlooked. If this process is not handled correctly, what could have been a tax-free capital gain may turn into taxable income.
Therefore, if you’re considering transferring your company shares to a personal holding company, make sure you are aware of the Transponierung rules. It’s essential to seek legal and tax advice in advance to ensure that the transfer is structured in the most tax-efficient way possible.
