Source: http://www.swisstaxnetwork.ch/individual-taxation---besteuerung-nat-personen/indirect-partial-liquidation
Timestamp: 2019-04-19 10:59:09+00:00

Document:
Cooperation: seller knows or must have known that non necessary and distributable reserves are used to finance the acquisition and are transferred to the seller as part of the price (Art. 20a para. 2 FITA).
1 A system change occurs even if the purchaser declares its participation rights as part of business asset at the time of the acquisition pursuant to Art. 18 para. 2 FITA (see also Circular No. 14 of the FTA, dated 6.11.2007, para. 4.3).
Please refer to the German version.
What are the tax consequences for the seller in an indirect partial liquidation case?
What is the tax base in an indirect partial liquidation case?
Is the buyer faced with restrictions for the post deal integration in case of an agreed indirect partial liquidation clause in the purchase agreement?
Why does a seller ask for an indemnity in the SPA?
An individual resident Switzerland wishes to realise an income tax free capital gain. Such seller therefore has a strong interest to avoid an indirect partial liquidation taxation and if well advised will ask for a clause like the one below under which not required substance of the target is not distributed for five years after the completion of the transaction.
A would have to pay taxes on the full dividend payment of CHF 5 mio. as income from investment (Art. 20 para. 1 lit. c FITA). According to Art. 20 para. 1bis FITA he benefits from the partial exemption of income tax.
A AG would have to pay withholding tax on CHF 5 mio (Art. 4 para. 1 lit. b WHTA und Art. 20 WHT Ordinance).
A realizes a capital gain in accordance with Art. 16 para. 3 FITA subject to the below.
At the level of B AG, the book value principle applies from an income tax perspective. The dividend distribution impoverished A AG. B AG books the dividend as income, but B AG's book must be depreciated by the same amount of the impairment of the A AG shares.
According to Art. 69 f. FITA B AG may benefit from the participation relief, unless no impairment is booked.
Hence, no income tax will be payable.
Withholding tax is levied on A AG but may possibly only be reported.
A realizes no capital gain according to Art. 16 para. 3 FITA but income from investment persuant to Art. 20 para. 1 lit. c FITA (Art. 20a para. 1 lit. a FITA; Art. 7a para. 1 lit. a CCITHA).
Swiss resident sellers being individuals in a share purchase agreement often require on a non-distribution of assets to prevent an indirect partial liquidation.
8.1.1 Purchaser has been made aware of Seller's intention to derive a tax-free capital gain from the sale of Shares under this Agreement, as well as the Swiss income tax provisions and / or administrative guidelines regarding direct or indirect total or partial liquidation ("direkte oder indirekte Teil- oder Totalliquidation"), as set out in art. 20a of the Federal Act on Direct Federal Tax (DFT), Article 7a Federal Tax Harmonization Act, corresponding provisions of cantonal tax laws and Circular No. 14 of the Swiss Federal Tax Administration, dated 6 November 2007 ("Circular No. 14"), which concern Sellers who are Swiss resident individuals and own Shares as private property.
8.1.2 The Purchaser undertakes and assures, during a period of five years from Closing, not to take nor that the Company will take any measures after the Closing which a tax authority in Switzerland could qualify as direct or indirect total or partial liquidation in accordance with the aforementioned tax laws and / or Circular No. 14 and thus would lead to a re-classification of the Seller's private capital gain into taxable investment income.
8.1.3 In case of a violation of any obligations of this Section 8, Purchaser shall be liable to Seller for any tax consequences ( Swiss federal tax, cantonal tax, municipal tax, church tax including any related interest, penalties, costs and expenses, court and reasonable attorney’s fees) on the Seller and shall fully indemnify the Seller, irrespective of any fault and without any limitations by this Agreement or the CO. Purchaser's obligation to indemnify the Seller survives even if Purchaser disposes of the Shares during the five year-period which is relevant for purposes of the direct or indirect partial or total liquidation set forth above. Purchaser undertakes to use all efforts and assures that Company uses all efforts (at their costs) to assist Seller in the defense of any negative tax consequences.
8.1.4 The Purchaser shall in the case of a subsequent transfers of share interest in the Company include the same restrictions as set forth in this Section 8 and the obligation to include such clause in any subsequent share purchase agreement, transfer or contribution agreement during the five year blocking period counted as per Closing.
8.1.5 The Seller agrees to fully cooperate with the Purchaser in order to obtain any ruling which the Purchaser requests at its sole discretion and at the Purchaser's costs. Without prejudice to the generality of the foregoing, the Seller agrees to promptly provide the Purchaser with a power of attorney to file the ruling on behalf of the Seller at the Purchaser’s first request, it being understood that the Purchaser will keep the Seller informed.

References: Art. 18
 Art. 20
 Art. 20
 Art. 16
 Art. 69
 Art. 16
 Art. 20
 Art. 7
 art. 20