SWITZERLAND Law and Practice Contributed by: Marco Toni, Gilles Pitschen and Leonard Baumann, Loyens & Loeff
5.2 Tax Consequences Spin-offs can be structured as tax-neutral reor- ganisations at the corporate level (including a so-called holding spin-off) if certain require- ments are fulfilled – irrespective of the execution under civil law (eg, asset deal, two-step demerg- er or statutory demerger). The most important requirements for Swiss tax purposes are that: • the tax liability in Switzerland continues; • the values previously relevant for income tax are taken over; • one or more businesses or parts of business- es are transferred; and • the legal entities that exist after the spin-off continue to operate a business or part of a business. It should be noted that, especially in the case of tax neutral spin-offs, the key element is the so- called double business requirement. If the above-mentioned conditions are fulfilled, the tax neutrality of spin-offs also applies to the shareholders, provided there will be no gain in the nominal value or so-called capital contribu- tion reserves (for individuals). There is no blocking period for Swiss tax pur- poses, provided the spin-off qualifies as tax neu- tral spin-off. 5.3 Spin-Off Followed by a Business Combination In principle, and bearing in mind that a tax-neu- tral spin-off is based on the requirement of two separate businesses without being subject to a blocking period, a spin-off immediately followed by a business combination should be possible for Swiss tax purposes.
the management holding equity in the company is paid with a mix of cash and equity. 4.4 Liquidity Event: Certain Transaction Terms Customarily, shareholders’ agreements between the founders and venture capital investors pro- vide for drag- and tag-along rights in relation to liquidity events. Such drag- and tag-along rights contain provisions on the key terms and con- ditions that apply to shareholders in case of a sale event or a public listing. The terms of such provisions are usually highly negotiated and may contain more or less detailed provisions on what representations, warranties and indemnities the shareholders are required to give in a sale pro- cess. In general, any such liability is limited to each shareholder’s share in the purchase price and is several – rather than joint – with the other shareholders. Obligations to enter into escrows or agree to hold-backs may also be contained in the drag- and tag-along rights. The use of warranty and indemnity (W&I) insur- ance is growing in Switzerland. W&I insurance is now generally an accepted instrument among professional players in the market.
5. Spin-Offs 5.1 Trends: Spin-Offs
Usually, Swiss privately held venture capital- financed technology companies pursue one coherent business and are therefore not in a position to spin off a business. Therefore, spin- offs for such companies are rather unlikely. How- ever, if a company has different lines of business that do not all match the strategic fit of a buyer, a spin-off may be the preferred structure.
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