Significant relief for domestic companies involved in M&A activities as intra-group intermediaries

Background

• Swiss securities transfer tax applies to the acquisition or sale of taxable securities in case a Swiss securities dealer is involved in the transaction – either as buyer, seller, or intermediary. In case domestic securities are transferred, the tax amounts to 0.15% of their fair market value, and 0.3% in case of foreign securities. Certain exemptions apply to group internal transactions.
• Taxable securities are bonds and shares, including shares in other companies in the context of M&A transactions.
• As Swiss securities dealers qualify e.g. domestic banks, M&A brokers, but also Swiss-resident companies holding taxable securities with a total book value exceeding CHF 10m. Thus, any Swiss holding company with participations of more than CHF 10m in total qualifies as a Swiss securities dealer.
• With regard to Swiss group companies acting in M&A transactions as intra-group intermediaries, the Swiss Federal Tax Administration (SFTA) has now clarified its practice in an official promulgation published on November 1, 2024.

Existing practice (until October 31, 2024)

• A Swiss group management company that performs group-internal M&A brokerage activities services may be seen as a securities dealer (M&A broker) and – in case its contribution to a successful M&A deal is sufficiently large – an intermediary. This resulted in securities transfer tax being due under such circumstances in a successful M&A deal.
• A Swiss group holding company with participations of more than CHF 10m and being substantially involved in the negotiations of an M&A deal (causal link between involvement of the holding and successful conclusion of the M&A deal) triggered securities transfer tax, as the holding qualifies as Swiss securities dealer and – due to its significant involvement – also as an intermediary.

Clarified practice (as of November 1, 2024)

• For the group management company, the SFTA has clarified that group-internal M&A brokerage activities do not lead to a qualification of the relevant group management entity as an intermediary and thus as a Swiss securities dealer provided that these activities are exclusively group-internal. If the latter is the case, these activities are no longer regarded as those of an intermediary in the sense of the law as no commercial purpose per se is pursued with these activities. However, pursuing a commercial purpose is a prerequisite for the qualification as an intermediary.
• As regards a holding company qualifying as a Swiss securities dealers due to holding participations of more than CHF 10m on its balance sheet, the SFTA has clarified that such a company will only then no longer qualify as an intermediary, if a third-party investment bank was engaged for the M&A transaction, or if the deal negotiations are being led by individuals not being associated with said holding company (i.e. employed by another group entity).

Effective Date

• This relaxed practice comes into force immediately (as of 1 November 1, 2024) and is also applicable for cases pending at the SFTA. However, there is no retroactive application.

Conclusion

• This clarification provides significant relief and removes uncertainties for Swiss holding companies involved in M&A activities and for group management companies with M&A teams.

Please contact the authors of this article directly to discuss any of the issues raised and to learn how A&M can help you.