Table of Contents
1. M & A Activity in Switzerland 2. Regulatory Framework 2.1 Acquisition of Swiss Real Estate 2.2 Antitrust Law 2.3 Regulated Industries 2.4 Disclosure of Shareholders 2.5 Insider Trading 3. Private Transaction 3.1 Purchase of Shares or Assets 3.2 Mergers 3.3 Joint Ventures 4. Public Transactions 4.1 Swiss Take-Over Code 4.2 Stock Exchange and Securities Act 4.3 Defenses against Hostile Take-Overs 4.3.1 Structure of Share Capital 4.3.2 Voting Pool 4.3.3 Transfer Restrictions on Registered Shares 4.3.4 Restrictions on the Exercise of Voting Rights 4.3.5 Requirements on Changes of Articles 4.3.6 Redemption 4.3.7 Poison Pill 4.3.8 Poison put 4.3.9 Lock-up Agreements 4.3.10 Golden Parachutes 4.4 Proxy fights 4.5 Directors' and Officers' Duties 5. Financing Aspects 6. Accounting Aspects 7. Tax Considerations 7.1 Sale of Shares 7.1.1 Individual as Seller 7.1.2 Company as Seller 7.2 Sale of Assets 7.3 Tax Aspects for the Purchaser 7.4 Tax Rulings 7.5 Transactional Taxes 7.6 Taxes on Mergers
1. M & A Activity in Switzerland
Most Swiss businesses are privately held companies: out of approx. 170'000 stock companies registered in the Commercial Register only some 250 are listed on the joint Swiss Stock Exchange. Additionally, the shares of some 600 smaller companies are traded on the over-the-counter market. Furthermore, even the great majority of the listed (i.e., "public") companies are controlled by a single or few shareholders. Most merger & acquisition (M&A) transactions in Switzerland are, therefore, privately negotiated share transactions. Nonetheless, Switzerland has seen quite a number of friendly public bid transactions. Particularly in the 1960s and 1970s, tender offers were commonly used for the friendly merging of former competitors into larger entities. In recent years, the public bid scene has been revitalized by such widely noted transactions as Philip Morris/Jacobs Suchard or CS Holding/Schweizerische Volksbank. Several hostile take-overs were fought. Often these were 'sneaky attacks', i.e., clandestine purchases of large share packages by raiders without a public offer for the shares, often followed by negotiations with the management (e.g. Sulzer, Usego, Sibra). In some other cases, however, outright hostile take-over attempts with a formal public bid for the target's shares have taken place (La Suisse, Publicitas, Konsumverein Zurich and Holvis) which ultimately caused a take-over of the target by the original bidder (Konsumverein Zurich) or a white knight (La Suisse and Holvis); only in one case the desired target (Publicitas) remained independent.
Following its peak with more than 400 reported transactions in 1989 and 1990, the Swiss M&A market stabilized in the early nineties. For the last two years and to date, the market is dominated by divestitures, paper (rather than cash) transactions and restructurings. The rejection of the EEA-Treaty by the Swiss people in 1992 might have a negative impact on foreign investments. Nonetheless, there have been several sizable transactions in the recent years (Movenpick, Sibra, PCW Group, Schweizerische Volksbank, Kuoni, Kardex, Neue Aargauer Bank, Heineken/Calanda-Haldengut, SSCP, Holvis, Helvetia/Patria) including a few widely noted initial public offerings (ESEC, Phonak, Clariant).
2. Regulatory Framework
Switzerland has no specific regulations with respect to M&A transactions, exchange control, general registration requirements or general restrictions of foreign investments. Nonetheless, there is an array of regulations of particular aspects of business which may have an impact on public as well as on private M&A transactions:
2.1 Acquisition of Swiss Real Estate
Federal law (so-called Lex Friedrich) restricts acquisitions by foreigners of real estate or of a controlling interest in Swiss companies with real estate property in Switzerland the market value of which, on a consolidated base, exceeds one third of its operational assets. While real estate values have been negatively affected by recession and a slow market, a considerable part of Swiss industrial and also some service companies still qualify as real estate companies under this statute. If they do, they may still be acquired by a foreigner or a foreign-controlled company subject to governmental approval which is granted, inter alia, if the Swiss company is made a part of the acquiror's own business operations. This essentially eliminates only the pure finance and investment M&A transactions by foreigners. Governmental approvals under the Lex Friedrich are normally made subject to restrictions with regard to the use and resale of the real estate and/or the shares. A bill to ease these restrictions was rejected by the Swiss people in 1995.
2.2 Antitrust Law
The Federal Cartel Act of 1986 does not provide for merger control but it allows the Swiss Cartel Commission to start investigations in case a transaction creates or reinforces a dominant market position and if there are indications of economically or socially damaging effects. The Commission may make certain recommendations to the parties and if the recommendations are not complied with, the Federal Government may order compliance with such recommendations. Neither the Commission nor the Federal Government is, however, empowered to undo a merger or acquisition. Also, there are no pre- or post-merger notification requirements and neither is there any need to obtain clearance from the Commission or the Federal Government for any M&A transaction. Currently, the Federal Cartel Act is under revision. The bill pending before the Swiss parliament contains merger control provisions in the sense that certain notice requirements will have to be complied with and transactions are deemed approved, if the competent federal commission does not object within 30 days.
2.3 Regulated Industries
There are several laws which specifically restrict or exclude the purchase of Swiss companies by foreigners. By far the most important of these is the Federal Banking Act which requires, in addition to the normal banking license, a special authorization by the Swiss Banking Commission for the operation of a Swiss bank by a foreigner or a foreign-controlled entity. A company is considered to be foreign-controlled if more than 50 percent of its shares are owned by foreigners or foreign-controlled entities, or if it is otherwise, e.g., by management influence, controlled from abroad. The special authorization requires, among other things, reciprocal treatment, subject to overriding international treaties such as GATS.
Other laws of minor importance restrict foreign acquisitions of certain companies in the fields of media and transportation.
2.4 Disclosure of Shareholders
By virtue of Art. 663c of the Swiss Code of Obligations (CO), companies with shares listed on a stock exchange have to disclose, in their annual business report, the identity of shareholders or organized groups of shareholders with a title or beneficial interest of more than 5 percent. If the articles of incorporation provide for a lower percentage limit for registered shares' holdings, such lower threshold also applies for the purpose of disclosure.
In spring 1995, a bill for a Stock Exchange and Securities Act (SESA) has passed Parliament. The SESA is planned to be enacted on July 1, 1996. Its Art. 20 will introduce a duty to disclose the acquisition or the sale of participations in publicly listed companies if by this acquisition or sale thresholds of 5, 10, 20, 33 1/3, 50 or 66 2/3 are passed.
2.5 Insider Trading
Insider trading of securities is considered a crime and made subject to criminal punishment under Art. 161 of the Swiss Penal Code. Insider trading is committed by persons who, as insiders of a public company, obtain a pecuniary benefit by exploiting their own knowledge of qualified confidential facts which, were they to be disclosed, would materially affect the market value of the company's shares. Amongst others, an impending acquisition or a merger is deemed to be a qualified confidential fact.
The law is geared against the individual trading for one's own benefit or the benefit of a third party. Pursuant to the predominant view, the purchase of public shares of the target by a company intending to take over such target company is not prohibited insider dealing. Furthermore, the companies involved in the acquisition or the merger have no liability per se for any prohibited private insider dealings by their employees.
3. Private Transaction
3.1 Purchase of Shares or Assets
In private transactions, businesses are bought either by purchase of assets (with or without liabilities) or by purchase of shares. Both sale of assets and shares are governed by the Swiss Code of Obligations ("CO") and its provisions on sales. The Code provides for some implied warranties and other statutory remedies (rescission, reduction of purchase price and damages) in case of non-performance.
Share Purchase: According to a long standing practice of the Swiss courts, implied warranties in case of a share transaction relate only to the shares as such and not to the underlying business. Specific representations and warranties relating to the business are, therefore, essential for the purchaser, e.g., as to the accuracy of financial statements, absence of contingent liabilities (e.g., litigation, taxes, open pension fund contributions, environmental liabilities, condition of assets, etc.). Furthermore, acquisition agreements may contain provisions on escrow and/or earn-out periods, closing and conditions precedent to closing, covenants not to compete, specific remedies upon breach of representations and warranties or non-performance, choice of law and jurisdiction (or arbitration), etc. Because the Swiss law on sales provides for short statute of limitation periods for warranty claims (one year), the statutory period is usually extended and the purchaser is given additional time to examine the seller's compliance with the agreement.
Asset Purchase: Asset purchases are rather complicated under Swiss law because the title to each asset must be transferred separately. Though under a special provision (Art. 181 CO), liability might be transferred automatically with the assets in certain circumstances, whole contracts and governmental authorizations may only be transferred with the consent of the third party or the appropriate governmental authority, except for employment contracts, which are transferred to the acquiror by operation of law unless such transfer is rejected by the employee. Real estate transfers require a public deed, registration and the payment of transfer taxes. All these, in addition to various tax considerations, are the reasons why the parties in most cases prefer a share transaction over an asset purchase.
3.2 Mergers
Statutory mergers under Swiss law are effected by absorption (one company is merged into another) or combination (two companies are dissolved into a newly formed company). Mergers require execution of a merger agreement, shareholders' approval, and compliance with special requirements for the protection of creditors. Furthermore, the board has to issue a special report to be certified by the company's auditors if the merger leads to a capital increase of the surviving company.
Most recently, the Swiss authorities also acknowledged cross-border mergers, i.e., mergers between Swiss and non-Swiss companies even in the form of statutory mergers.
Instead of a statutory merger, similar results can be achieved by using alternative forms such as a sale of assets and liabilities, a share exchange transaction or the formation of a new company which takes over assets and liabilities of the two "merging" companies in exchange for own shares (this last method was used in the ABB merger).
Furthermore, Swiss law presently does not provide for a short form or cash out merger (see, however, Sec. 4.2). Consequently, a simple squeeze-out of minority shareholders is not easily possible. Under certain circumstances, a squeeze-out might, however, be achieved by liquidating one company into another and paying cash liquidation proceeds to the minority shareholders. Because such a procedure severely infringes upon the interest of the minority shareholders and the principles of equal treatment, it is available only in exceptional cases, i.e., it needs a compelling reason to be justified under the applicable standards.
3.3 Joint Ventures
Joint ventures are not specifically regulated by Swiss law. Joint ventures may be organized as pure contractual relationships, as partnerships or in the form of "quasi-mergers". The terms of such joint ventures are typically set out in a partnership or joint venture agreement which will supplement and to some extent even override the articles of incorporations and other corporate rules.
4. Public Transactions
4.1 Swiss Take-Over Code
In absence of federal or cantonal legislation, the Association of Swiss Stock Exchanges adopted the Swiss Take-Over Code (the 'Code') in 1989. The Code was amended in May 1991. The Code does not have the force of law; it is an instrument of self-regulation in the form of a private agreement between the members of the Swiss Stock Exchanges (i.e. mainly banks) similar to, but somewhat narrower than the UK City Code. The Code applies to all public offers for the acquisition of shares including participation certificates (non-voting stock) and securities giving a right to acquire shares (e.g. convertible bonds and options) of Swiss (not foreign) companies listed on, or traded in, any Swiss Stock Exchange. The Code covers both friendly and unfriendly offers.
Its stated purpose is to ensure that shareholders and the corporate bodies of the target company are provided with adequate information to prevent market manipulation and to secure compliance with the principles of good faith. The Code does not contain mandatory offering rules or notice requirements. Therefore, the Code does not prevent secret stake buildings or acquisitions of control or other major voting blocks without triggering an obligation to make a public bid. Compliance with the Code is supervised by the Commission for Regulation of the Swiss Exchange (the Commission).
Formal requirements of the offer include publication and disclosure requirements as well as minimum (two weeks) and maximum (two months) duration of the offer. The offer may only be made subject to conditions beyond the offeror's control (e.g., obtaining of governmental authorizations, absence of an injunction, etc.). The offeror may not withdraw or alter the offer except to increase the bid or to extend the offer within the maximum period. In case of a counter-offer the original offer may be withdrawn. Further, the Code provides for a waiting period of one year to launch a second offer for the same securities except after a third party makes an offer under the Code.
Under the Code's equal treatment rule the offeror is obliged to treat all shareholders in comparable situations equally. In two rulings, the Commission has clarified this rule as follows:
- the offeror shall not pay a price higher than the offer price in private transactions made subject to the success of the offer;
- the offeror shall not pay a price higher than the offer price in private transactions made during the offer period;
- the offeror shall not pay a price higher than the offer price in private transactions agreed in the period of three months before the offer, except if the offeror thereby acquires the majority of the voting rights.
Partial offers are possible. In the case of a partial offer, tenders have to be treated pro rata and if the offeror, at the time when the offer becomes unconditional, together with his previous holding, controls more than 50 percent of the voting rights, he has to purchase all shares tendered.
The burden on the target is minimal under the Code: In particular, the target company is enjoined from manipulating the share price. By contrast, it is free to implement defensive measures which may include the denial of registration in case of registered shares. However, the Code requires the target to call a shareholders' meeting to vote on such defensive measure, if the offeror has acquired 10 percent or more of the capital (not of the voting rights and also independently of his registration as a shareholder) and he so requests.
4.2 Stock Exchange and Securities Act
With the planned enactment of the SESA as per July 1, 1996, the present self-regulatory Swiss Take-Over Code will be replaced by a statutory regulation for take-overs in Switzerland. Procedurally, the Commission for Regulation will be replaced by the Swiss Take-Over Commission, formally a sub-commission of the Swiss Banking Commission. Substantively, the new provisions will largely restate the rules regarding the formal requirements of the offer developed under the Code. The SESA will, however, substantially modify the existing regime covering take-overs in Switzerland by introducing a mandatory offering rule. Under this rule, a person having acquired 33 1/3 percent of the voting rights of a listed company will be required to submit an offer to all shareholders of the company at a price which is (1) not lower than the market price at the time the threshold was passed and (2) not more than 25 percent below the highest price which the person required to submit the offer has paid for shares in the company within the last 12 months prior to the passing of the threshold. This new Swiss regime will, therefore, not exclude control premiums but limit their size. Under the SESA the shareholders' meeting of a company may, by amendment of the articles, opt-out of the said mandatory offering provision or raise the threshold for the mandatory offer from 33 1/3 percent up to 49 percent. In the case that a company decides for a full opting-out, a buyer of a controlling stake will not be required to submit an offer to the minority shareholders.
4.3 Defenses against Hostile Take-Overs
Traditionally, the flexibility of Swiss Corporate Law allowed a great variety of quite severe defensive measures against unfriendly take-overs, most of which were widely used by public companies including most of the large Swiss multinational companies. With the 1992 revision of the Swiss Corporation Law, the availability of such 'fortress' schemes has been substantially curtailed. Nonetheless, there remains a variety of such defensive actions:
4.3.1 Structure of Share Capital
A company may issue registered shares with voting privileges and/or non-voting stock in the form of so called participation certificates (non-voting shares). These are the two devices most often used by privately held and public companies to create an inequitable voting structure which ultimately allows the voting majority to be kept in the hands of shareholders who own a fraction of the capital only. Before the revision of the law, the ratio between the par value of voting and other shares could be chosen at the company's discretion. Under the revised law, new voting shares may only be issued at a par value of no less than a tenth of the par value of common stock. Furthermore, the revised law now imposes several restrictions with respect to the use of participation certificates which has already caused many public companies to change their participation certificates into voting stock.
4.3.2 Voting Pool
Many public companies are tightly controlled by families or other shareholder groups organized in voting pools by means of Shareholders' Agreements.
4.3.3 Transfer Restrictions on Registered Shares
Under the revised law a corporation may now refuse to recognize a purchaser of listed shares as shareholder if the articles of incorporation provide for a certain percentage limit for shares to be held by one shareholder and the shareholder by his purchase exceeds such limit. Recognition of a purchaser may also be refused if a corporation otherwise would not comply with statutory requirements (Art. 4 of the Final Provisions). This provision aims at such statutes as the Lex Friedrich or the Federal Banking Act. The companies have been granted a grace period running out on July 1, 1997 to dismantle further reaching transfer restrictions implemented under the old law and adjust their articles to the new regime. A company using share transfer restrictions as a defense technique may only be successfully raided if the offeror acquires, and has registered, directly or through proxies, sufficient votes to both amend the relevant provisions of the articles and to replace the board which refuses registration. Accordingly, recent hostile tender offers have been made subject to the condition that such provisions in the articles are changed.
4.3.4 Restrictions on the Exercise of Voting Rights
The articles may provide that no shareholder may vote more than a certain percentage of votes, regardless whether he owns them or he acts as proxy. Restrictions on the exercise of voting rights apply to registered and bearer shares. Again, an offeror may make his offer subject to the prior lifting of such restrictions.
4.3.5 Requirements on Changes of Articles
The above restrictions on share transfers and voting can be further restricted by imposing special majority requirements for lifting the pertinent provisions in the company's articles (lock-up provisions).
4.3.6 Redemption
The revised Art. 659 CO specifically allows a corporation to purchase its own shares. The company may, however, purchase no more than 10 percent of its own shares. In case of a purchase of own shares in accordance with a transfer restriction of registered shares the company may acquire up to 20 percent of its shares and hold them for no longer than two years.
4.3.7 Poison Pill
A poison pill mainly consists of a stock dividend which grants the shareholders, with the exception of a raider, an option to acquire additional shares or other securities in the case of an unfriendly take-over attempt. The use of such a poison pill is questionable under Swiss law and is generally not adopted by public companies in Switzerland.
4.3.8 Poison-put
By means of a 'poison-put' provision in its financial indentures, a company may make immediately repayable a larger or smaller part of its private or public debt in case of a take-over. Many Swiss companies have hidden or open poison puts in their loan documentation.
4.3.9 Lock-up Agreements
In a lock-up agreement the target company undertakes to sell crucial assets of the company ("crown jewels") to a party interested in taking over such assets in case another party should succeed in a take-over. At least in one case (Holvis) a lock-up agreement has been considered lawful by the court deciding in summary proceedings over the demand for a preliminary injunction as well as by the Commission for Regulation of the Swiss Exchange based on the consideration that in the respective case the board of the target company, by entering into the lock-up agreement, primarily intended to maximize the price offered to the shareholders and not to lock-out the competing bidder. The frustrated bidder having refrained from further pursuing the case, the law on lock-up agreements still remains somewhat unclear. In this respect the new Stock Exchange and Securities Act will bring a substantial clarification by specifically enjoining the board of a company from entering into transactions substantially affecting the assets and/or liabilities of the company after the formal announcement of a take-over bid unless such transaction is specifically approved by the shareholder's meeting of the company (Art. 29 para. 2 SESA).
4.3.10 Golden Parachutes
Indemnities becoming payable to the management in case of an unfriendly take-over are generally possible but may expose the board and the officers to personal liability and are, therefore, by and large avoided though not completely unknown.
4.4 Proxy fights
They are almost unknown in Switzerland mainly because the holders of bearer shares are anonymous and, with respect to registered shares, the share register is neither available to the public nor to shareholders.
4.5 Directors' and Officers' Duties
Under Swiss law, directors and officers of a company have far-reaching fiduciary duties against the company. If they violate such duties they become personally liable to the company, its stockholders and creditors for the damage caused.
In case of a public offer for the shares of the company, directors and officers are bound to act in the best interest of the company and to abide by the requirement of equal treatment of the shareholders. In case of friendly take-overs which comply with the requirement of the Code, the board may, in normal circumstances, recommend acceptance without violating its fiduciary duties. On the other hand, there are no court decisions specifying the requested standards for a board's reaction to unsolicited offers.
5. Financing Aspects
Since Swiss companies are usually well financed with equity, they are, as a general rule, able to finance their acquisition with their own funds or to obtain the necessary funds via bank loans or public debt. Creditors might ask for collateral. Sometimes, the shares of the acquired company are used as collateral.
Statutory mergers and quasi-mergers are generally financed by the issuance of shares of the acquiring company.
6. Accounting Aspects
At the level of individual company statements (non-consolidated statements), investments of Swiss companies in other companies are usually stated at cost, net of the necessary write-downs. For minority investment in other companies between 20 percent and 50 percent Swiss companies usually use the equity method for accounting, i.e., the holding company states its share of the net equity in the balance sheet and its appropriate share of the income in its income statement.
Sometimes, acquisitions are accounted for on the basis of the purchase price method under which the acquired assets are revalued to fair market value. Traditionally, any difference between the fair market value and the purchase price (i.e., goodwill) is written off directly against equity. Under the influence of the International Accounting Standards (IAS) many Swiss companies have started to capitalize goodwill and amortize it over its useful lifetime. Negative goodwill (badwill) is accounted for analogically.
Under the revised company law, Swiss companies controlling one or more other companies are required to prepare consolidated statements if at least two of the following criteria are met in two consecutive years:
- total assets in excess of CHF 10 million
- revenues in excess of CHF 20 million
- average number of employees in excess of 200.
Furthermore, consolidated statements are required if the holding company has
- issued bonds
- if its shares are listed on a stock exchange
- if it is required by shareholders who own at least 10 percent of the capital stock, or
- if consolidated statements are required for a clearer understanding of the accounts.
7. Tax Considerations
7.1 Sale of Shares
7.1.1 Individual as Seller
Capital gains realized by an individual who sells shares are normally, except in the canton of Grison, tax-exempt. In specific cases the tax authorities tend, however, to perceive capital gains as de facto dividends or liquidation proceeds which makes the seller subject to income taxation. The following transactions are, amongst others, amenable to this tax treatment:
- the shares are transferred to a holding company controlled by the seller himself for a price exceeding the nominal share value (so-called "transformation");
- in view of the divestiture, the seller takes a loan from the company which is assigned to the purchaser and then set off against the purchase price, thereby reducing the cash requirements for the purchaser. Subsequently the purchaser sets off the loan against a superdividend (i.e., a dividend paid out of retained earnings) taken out of the acquired company (so-called "partial liquidation"). A partial liquidation may also be given if the purchaser refinances a part of the purchase by having the acquired company pay a superdividend. Furthermore, the tax authorities might assume a partial liquidation if the purchaser, in order to finance the transaction, causes the target company to grant a loan to the purchaser or simply to pledge its assets and the purchased company, as a consequence of this has either to write off the loan or set up a provision. By contrast, the refinancing of the purchase price through the company's future cash flow does not create tax problems.
7.1.2 Company as Seller
Capital gains realized by a seller company are subject to income taxation. The applicable tax rate is up to 9.8 percent if the shares are held by a company with holding or domiciliary privilege on the cantonal level or full taxation (up to approximately 32 percent) if the seller is an operational company.
7.2 Sale of Assets
Capital gains on asset sales are fully taxable for Swiss seller companies.
7.3 Tax Aspects for the Purchaser
A foreign purchaser must be aware of the fact that Swiss companies often have hidden reserves or deferred tax liabilities without adequate provision.
In a share transaction, the tax base for the shares in the purchaser's books is equal to the purchase price. Except in particular cases (e.g., if the acquired company encounters serious financial difficulties) it is not possible to write off the goodwill component for tax purposes. In contrast, if the purchaser acquires assets, the goodwill might be recorded separately and written off against taxable income.
Every purchaser must choose the proper domestic or foreign acquisition vehicle. Swiss tax law does not acknowledge the concept of tax grouping or tax consolidation which makes it more difficult to set off the costs of acquisition debt against operational income of an acquired company. Similarly, the purchaser will not be allowed to use losses carried forward from the acquired company. By contrast, losses carried forward by a Swiss purchaser will be offset by future gains of the acquired business in the event of an asset purchase or in a merger.
Dividends are taxable income for a private individual but may be sheltered, if the shares are held by a Swiss holding company or by an operational company taking advantage of the participation deduction provided for in the federal, and most cantonal, tax laws. If dividends are not sheltered, the company's income is taxed twice: i.e., as profit of the acquired company and as dividend income of shareholder. In any event, the distribution of dividends is subject to withholding taxes which might be fully recovered by a Swiss taxpayer or reduced in the event of a foreign recipient under the applicable double taxation treaties. The tax authorities may refuse to refund the withholding tax, if immediately following the acquisition the acquired company is dividending out all, or a substantial part, of its retained earnings to the purchaser who is entitled to a refund which is higher than that which the seller would have obtained.
7.4 Tax Rulings
Swiss tax laws leave the authorities with wide discretionary powers, particularly with regard to issues such as the above-mentioned "transformation" or "partial liquidation" theories. In complex M&A transactions it is, therefore, recommended to obtain advance tax rulings.
7.5 Transactional Taxes
The public trading and, in certain cases, the private selling of shares of a Swiss company might be subject to a transactional tax of 0.15 percent plus an insignificant additional stamp duty in certain cantons.
7.6 Taxes on Mergers
Since April 1, 1993, shares issued in a merger are exempt from the 3 percent stamp duty.
Capital gains of individual shareholders of the acquired company are normally tax-free if they reside in Switzerland. Should the nominal value of the new shares, however, exceed the nominal value of the shares of the merged company, the difference might be subject to income tax. Corporate shareholders are not taxable if they retain the same tax base for the new shares.
If assets and liabilities are transferred at book value, no income tax is incurred by the merged company, except if the acquiring company is incorporated in a different canton in which case income taxes are levied by a few cantons on the hidden reserves transferred out of a canton. However, based on the new Federal Law On Harmonization of the Cantonal and Communal Direct Tax Systems which came into effect on January 1, 1993, the cantons will have to change their tax laws. Amongst other issues, taxation of hidden reserves transferred out of a canton will no longer be possible.
Real estate gain or conveyance tax is levied by a few cantons and communities if the merged or absorbed company owns real estate in Switzerland.
A Report prepared by Peter Kurer, Heinz Schaerer, Eveline Oechslin and Hans Caspar von der Crone, Homburger Rechtsanwaelte, Zurich.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought in specific circumstances.
