Asset deal or share deal: a critical decision

The sale of a property can be structured either as a direct sale of the property (“asset deal”) or through the sale of shares in the company that owns it (“share deal”). This second option often offers an immediate tax advantage: in many cantons, the sale of shares is not subject to the transfer taxes applicable to direct property transfers.

In this context, the acquisition of a real estate company may appear to be a particularly attractive solution. One might also be tempted to conclude that such a transaction allows for the avoidance of real estate gains tax, since legally no real estate is being transferred. However, this conclusion would be premature. In several Swiss cantons, tax authorities apply an economic approach to the transaction and may subject the share deal to real estate gains tax.

An increasingly widespread economic approach

Treating shares as real estate

Under Swiss tax law, real estate gains tax generally applies to gains realized upon the disposal of real estate.

However, to prevent a real estate transaction from evading taxation by being structured as a sale of securities, certain cantons treat shares in real estate companies as real estate. In such cases, the sale of shares is treated as an indirect real estate sale.

Taxation That May Apply to Legal Entities

A ruling by the Federal Supreme Court confirmed that the sale of all (or virtually all) shares in a real estate company may be subject to real estate gains tax, even when the seller is a legal entity.

Thus, depending on the canton:

• taxation may occur at the location of the real estate
• regardless of the seller’s legal structure or status

Comparable cantonal practices

An analysis based on economic substance

In several cantons, notably Geneva, Vaud, and Valais, tax practice is based on a common approach that involves assessing transactions according to their economic substance rather than their legal form.

This approach aims to prevent a real estate transaction from evading taxation by being structured as a transfer of securities rather than a direct sale of the property. In this context, tax authorities focus on determining whether the transaction actually results in an economic transfer of real property ownership.

Tax consequences aligned with asset deals

In practice:

• the sale of all—or a controlling interest in—the shares of a real estate company may be treated as an indirect transfer of the underlying property
• the gain realized is then subject to real estate gains tax in the canton where the property is located
• regardless of the formal legal classification of the transaction

This economic interpretation is consistent with the case law of the Federal Supreme Court, which recognizes that the sale of equity interests may, under certain circumstances, be treated as a real estate transfer.

Corrective mechanisms to consider

Consequently, in these cantons, the distinction between asset deals and share deals tends to be largely neutralized for tax purposes. The choice of transaction structure alone therefore does not allow for the avoidance of real estate taxation.

It should be noted, however, that certain tax consequences specific to share deals may, in certain cantons, be subject to corrective mechanisms designed to avoid economic double taxation in the event of a subsequent sale of the property by the company (asset deal). We have analysed this issue in one of our articles devoted to the “step-up” mechanism applicable to real estate companies.

Conclusion: Anticipating the Structuring of the Transaction

The sale of shares in a real estate company often constitutes an attractive alternative to the direct sale of a property, particularly due to the absence of transfer taxes in many cases.

However, this structure does not necessarily allow one to avoid real estate gain tax. In several cantons, tax authorities prioritize an economic analysis of the transaction and may treat the sale of shares as an indirect disposal of the underlying property, which entails taxation of the real estate gain.

Therefore, a thorough preliminary analysis, considering both the structure of the transaction and the canton where the property is located is essential to anticipate tax consequences and avoid any surprises during the transaction.

The specialists at RSM Switzerland are available to assist you in analysing and structuring your real estate transactions, considering cantonal specificities.