Elimination of the holding privilege through AHV tax proposal: special rate solution

With the entry into force of the tax reform (STAF) on January 1, 2020, status companies will be taxed under ordinary taxation. When switching to ordinary taxation, there are two options for handling hidden reserves: special rate solution or step-up. Today we explain to you the special rate solution of the STAF.

In the last post of our series, we explained to you how the traditional step-up works, which already allows the disclosure of hidden reserves in most cantons today. However, the tax reform also brings a solution for the transition to ordinary taxation.‍

Special rate solution

‍The special rate solution of the tax reform provides that during a transition period of up to five years, the profits deriving from the realization of the hidden reserves created under the old tax status and self-generated goodwill (Goodwill) are taxed separately. The maximum amount corresponds to the amount of the existing hidden reserves and must be recorded in a ruling at the time of the status change. The special tax rate applicable to such profits can be determined independently by the cantons. Unlike the step-up, where the discovery of hidden reserves occurs in the tax balance sheet, no deferred tax items need to be set in the balance sheet in the special rate solution. Also, the relief limitation does not apply here.

To find out which of the two methods brings more benefits, it is worthwhile to compare both solutions with a view to tax optimization for your company. Many factors influence this, which is why each company requires an individual assessment.‍

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