Ch en Capital Contribution Principle Final

8/4/2019 Ch en Capital Contribution Principle Final

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Audit.Tax.Consulting.Corporate Finance.

The new Capital

Contribution Principle


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2011 Deloitte AG2 The new Capital Contribution Principle

Contents

Nominal Value Principle vs. Capital Contribution Principle 3

Conditions to be met 4

Recording of Capital Contribution Reserves 6

Opportunities 7

Timing may be crucial 9

Next steps 10


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2011 Deloitte AGThe new Capital Contribution Principle

Share Capital /

Common Stock

(at par value)

Share Premiums and other

Capital Contributions

Other Reserves /

Retained Earnings /Profit of the Year

Any repayment to the shareholder(s)out of the paid-in nominal capital isneither subject to Swiss withholding tax

nor to Swiss income tax.

Before 1 January 2011Nominal Value Principle

As of 1 January 2011Capital Contribution Principle

Nominal Value Principle vs. Capital Contribution Principle

Equity structure and latent tax liability

No changes

Any payment of a corporations equity

which is not a repayment of paid-incapital is subject to Swiss withholding

tax (treated as dividend for taxpurposes).

At the level of Swiss resident share-

holders such (re-)payment qualifies

as income from participations and issubject to income tax. Participation

exemption applies to qualifyingcorporate shareholders.

Any repayment of share premiums and other

contributions into the capital conducted by theshareholder(s) after 31 December 1996 is notsubject to withholding tax and no income tax isdue at the level of Swiss resident shareholders.

No changes

3


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Conditions to be met

Qualifying capital contributions

4

Generally qualifying

Not qualifying

Parent Company

First Level Subsidiary 1 First Level Subsidiary 2

Second Level Subsidiary 1 Second Level Subsidiary 2

Individual Shareholder(s)

Only (openly disclosed)contributions from direct

shareholders qualify foran income and withholdingtax exempt repayment.


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Conditions to be met

Disclosure requirements

5

Capital contribution reserves need to be disclosed in a separate account in the balance sheet;

Any changes in that account are to be reported to the Swiss Federal Tax Administration;

Any undisclosed reserves as well as other reserves remain subject to withholding and income tax (e.g., hidden capital contributions,contributions made by indirect shareholders or other group companies, reserves from retained earnings).

Some details relating to the correct reclassification / re-booking of capital contributions made between 1 January 1997 and31 December 2010 are still subject to interpretation and need to be thoroughly reviewed in the individual case.

Capital Contribution Reserves 500

Before 1 January 2011 As of 1 January 2011

Share Capital 1000

Legal Reserves 1400

Other Reserves & Retained Earnings 1600

= Total Equity 4000

Share Capital 1000

Legal Reserves 1100

Other Reserves & Retained Earnings 1400

= Total Equity 4000

300

200


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Recording of Capital Contribution Reserves

Initial disclosure in the financial statements 2011

6

Before 1 January 2011:Including (i) general reserves and share premiums, (ii) reserves for own shares and (iii) revaluation reserves;

After 1 January 2011:Share premiums obtained between 1 January 1997 and 31 December 2010 and the part of the reserves forown shares consisting of capital contributions need to be re-booked into the capital contribution reserves;

Before 1 January 2011:

Including (i) statutory reserves and (ii) free reserves, the latter comprising contributions not l inked to an

increase in the nominal capital and not recorded as share premiums as well as retained earnings;After 1 January 2011:Including (i) statutory reserves (ii) other capital contributions not qualifying under the capital contributionprinciple (e.g., grand-parent contributions, contributions prior to 1/1/1997, etc.) and retained earnings.

Capital

Contribution

Reserves

Other

Reserves& Retained

Earning

Legal

Reserves

After 1 January 2011:

Consisting of share premiums and other contributions from current or prior direct shareholders obtainedsince 1 January 1997 (capital contribution reserves connected to own shares have to be recorded in aseparate account capital contribution reserves for own shares);


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Opportunities

Who may benefit from the new Capital Contribution Principle?

Examples for withholding tax free distributions out of acorporation's capital contribution reserves

Foreign and Swiss shareholders

Foreign corporate shareholders not benefitting from a 0%

reduced treaty withholding tax rate;

Foreign and Swiss corporate shareholders benefitting from a0% withholding tax rate, but nevertheless aiming at achieving

flexibility for potential future restructurings or disposals;

Foreign corporate or individual shareholders not benefitt ing froma full tax credit for a remaining WHT on dividends;

Individuals residing in Switzerland.

Swiss distributing corporations

Swiss corporations which went public after 31 December 1996;

Swiss corporations which received any contributions in cash orkind from their direct shareholder(s) after 31 December 1996.

Swiss Corporation

Switzerland Abroad

Corporate

Shareholders

Corporate

Shareholders

no income tax

no need to credit or claim

for a refund of WHT

no need to withhold tax on distributions out ofcapital contribution reserves

distribution of capitalcontribution reserves is

exempt from WHT


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Opportunities

Former transactions to be analyzed in detail

IPOs

Migrationsto Switzerland

from abroad

Grouprestructurings

Incorporations

Financialrestructurings

Quasi-Mergers

Capitalincreases

Openly disclosed

vs. hidden capitalcontributions

Direct vs. indirectcontributions

Share buy-backsfollowed by a later

re-issuance


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2011 Deloitte AG

Capital contribution reserves accumulated between 1.1.1997 and 31.12.2010 need to be separately recorded in the financial

statements prepared for the business year ending during the calendar year 2011 (i.e., f inancial statements 2010/2011 or 2011);

The ordinary initial declaration (OID) with the Swiss Federal Tax Administration (SFTA) has to take place within 30 days afte r thefinancial statements were approved by the annual general shareholders meeting (AGM) ;

For the OID the detailed disclosure of the entire equity as included in the Swiss GAAP financial statements is to be based on Form170 including all relevant enclosures as well as on the Excel-Sheet Capital Contribution Principle;

Any repayment prior to the OID must be based on a shareholders resolution, and any change in the capital contribution

reserves since 1 January 2011 must be declared with the SFTA latest within 30 after the early repayment.

For corporations closing their business year 2010/2011 already in in the first half of 2011 timing is crucial!

9 The new Capital Contribution Principle

Timing may be crucial

Due dates to be met

1.1.1997 31.12.2010

accumulation of capitalcontribution reserves

1.1.2011

earliest date

of declaration

31.12.2011 31.12.2012

period of ordinaryinitial declaration (OID)

correct declarationof capital contribution

reserves required inthe financial statements

for the business year

ending on

Assumption: business years end at 31 December

annual general

shareholdersmeeting (AGM)

latest date ofordinary initial

declaration is30 days after AGM

declaration in the

tax return 2011

earlyrepayment

from capitalcontribution

reserves

latest date of

declaration is30 days after

early repayment


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Next Steps

How we can support your company

high-level

analysis

detailed

analysis and

determination of

exact amount

correct

recording of

capital

contribution

reserve

declaration with

the Federal Tax

Administration

In a first phase, we would

recommend performing ahigh-level analysis of allrelevant transactions and toroughly determine potential

capital contribution reservesfor all group companiesconcerned.

In this second phase, we

would suggest to assist youwith the identification of allcapital contributions made

between 1 January 1997 and31 December 2010 anddetermine their exact amount

for all group companiesconcerned.

During the process of the

preparation of your annualfinancial statements we mayalso support you together

with our colleagues from theaudit advisory team tocorrectly record and disclose

the capital contributionreserves as requested by theFederal Tax Administration.

Finally, we would be pleased

to assist you with the timelyordinary initial declaration ofthe capital contribution

reserves including also apotential prior declaration ofan early repayment as well as

the subsequent declaration ofchanges to the reserves infuture years based on Form

170 and the electronic filingof the Excel-sheet CapitalContribution Reserves

including all enclosures.


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Your team to contact

International Corporate Tax

Reto Savoia

Partner | International Corporate Tax

Tel/Direct: +41 (0)44 421 63 57

Email: [email protected]

Kerstin Heidrich

Senior Manager | International Corporate Tax

Tel/Direct: +41 (0)44 421 63 01


Audit & Advisory

Philippe Rechsteiner

Partner | Audit & Advisory

Tel/Direct: +41 (0)44 421 62 42


Andreas Steiner

Senior Manager | Audit & Advisory

Tel/Direct: +41 (0)61 285 12 77



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2011 Deloitte AG

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee, andits network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ch/about

for a detailed description of the legal structure of DTTL and its member firms.

Deloitte AG is a subsidiary of Deloitte LLP, the United Kingdom member firm of DTTL.

Deloitte AG is recognised as auditor by the Federal Audit Oversight Authority and the Swiss Financial Market Supervisory

Authority.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application ofthe principles set out will depend upon the particular circumstances involved and we recommend that you obtain professionaladvice before acting or refraining from acting on any of the contents of this publication. Deloitte AG would be pleased to advise

readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte AG accepts no duty ofcare or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this

publication.

2011 Deloitte AG. All rights reserved.
http://www.deloitte.com/ch/abouthttp://www.deloitte.com/ch/about

Ch en Capital Contribution Principle Final

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