Tax evasion to avoid a transposition tax

One speaks of transposition when company shares are sold by a private individual to a company they control, and the sale proceeds exceed the nominal value of the shares. However, if the shares are sold to a company not controlled by them, no transposition occurs.

A transposition, or also "sale to oneself," occurs when a private individual sells shares in a company in which they own at least 50% and the proceeds from the sale exceed the nominal value of the transferred shares. At least 5% must be transferred. However, a transposition also occurs if an individual transfers less than 5%, but the transfer is made jointly by several shareholders and together they exceed 5%. A transposition results in the difference between the proceeds and the nominal value being subject to income tax as capital income. It can also be classified as tax evasion if it meets the conditions thereof.

On October 26, 2017, the Federal Court assessed a case involving the issue of transposition. A father and his son from the Canton of Schwyz were both sole proprietors of a company. On January 1, 2011, the father sold 50% of the shares of his company to his son's holding company for 3.1 million CHF. The father then converted the purchase price claim into an interest-free loan, which he granted to his son's holding company. On December 20, 2011, he donated half of the former purchase price claim, now a loan claim, amounting to 1.55 million CHF, to his son. The tax administration of the Canton of Schwyz saw this as a transposition and consequently assessed the son and his wife with a taxable income of 725,000 CHF instead of 170,000 CHF. The additional amount of 555,000 CHF resulted from the 60% partial taxation of 925,000 CHF, which represented the difference between the donated loan amount of 1,550,000 CHF and the proportional nominal value of the shares of 625,000 CHF.

The Federal Court did not see this as a transposition, as it can only exist if the taxpayer sells shares to a company they themselves control, which was not the case here. However, it examined whether this was a case of tax avoidance and affirmed it, as the existence of a loan was merely simulated. It would have been concluded differently with a third party, for instance, with securities and interest payments. Furthermore, the donation of the loan claim was likely planned from the beginning, as it occurred within a year after the sale of the shares and, as mentioned, no securities were demanded. The taxpayers went about it abusively to save on taxes. Had the tax authorities accepted this, it would have resulted in significant tax savings.

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