Issuance stamp duty and reserves from capital contribution - decision of 29 November 2021 (A-5073/2020)


August 2022

According to the Federal Stamp Duty Act (hereinafter : « LT »), there is a tax, the issuance stamp duty (hereinafter : « ISD»), levied on the issuance of Swiss participations. In addition to the creation of participation rights in a strict sense, the purpose of the ISD is also to tax the additional contributions that the direct holder(s) of such participation rights make to the company without any corresponding consideration and without increasing the share capital (as is often the case in the event of a reorganization). The typical example in the case of reorganization is the partial or total waiver of claims held by the shareholder against the company, when the latter is struggling financial losses. The ISD is 1% of the market value contributed to the company.

However, it is possible to benefit from an exemption from the ISD in accordance with Art. 6, para. 1, letter k LT in case of :

  • Reorganization measure
  • Elimination of existing losses
  • Contributions from shareholders or partners do not exceed CHF 10 million in total


Note that in the event of the above-mentioned exemption, if the threshold of CHF 10 million is exceeded, there is still the possibility of applying for a remission of the ISD if the levying of the ISD would have manifestly harsh consequences for the company. However, this remission is subject to strict cumulative conditions in order to benefit from it. In this respect, we strongly recommend that you carry out a detailed analysis of a potential application of Art. 12 LT.


It is important to note that the condition of eliminating existing losses in order to benefit from the ISD exemption is in conflict with the tax principle of capital contribution. According to this principle, capital contributions and additional payments made by the shareholders of a company should be refunded tax-free to the shareholder(s) (i.e. income tax for natural persons, resp. 35% withholding tax). The principle of capital contribution applies to additional payments provided that they have been notified to the Swiss Federal Tax Administration (hereinafter « FTA ») in advance, in accordance with the forms and procedures to be observed, in particular Form 170 and separate entry in the balance sheet. Therefore, if these conditions are met, the repayment of the said contributions to the shareholders is tax exempt, i.e. with respect to withholding tax and income tax (at the level of the shareholder). 


However, the condition in Art. 6, para. 1, letter k LT for the elimination of losses in the balance sheet in the event of a reorganization meant that the company or the holders of participation rights had to make a choice. The latter had to choose between :


  • The exemption of the ISD according to Art. 6, para. 1, letter k or Art. 12 LT – which requires a compensation of balance sheet losses by the contribution made ;
  • The tax-free repayment (withholding tax and direct taxes) in the case of distributions to shareholders through the recognition of reserves from capital contributions within the meaning of Art. 20, para. 3 of the Federal Act on Direct Federal Taxation and Art. 5, para. 1bis of the Federal Act on Withholding Tax.


Indeed, if the contribution made to the company is used to compensate existing losses for accounting purposes, in order to benefit from the ISD exemption, the said contribution can therefore no longer be recognized separately in the equity of the balance sheet under the reserves from capital contribution. In this way, the shareholder loses his right to the tax-free repayment of the contribution in case of a dividend distribution in the future.


According to the decision of 29 November 2021 (A-5073/2020), the Federal Administrative Court ruled that in order to benefit from the ISD exemption of CHF 10 million or the reorganization rebate, Swiss companies are not required to compensate losses in their balance sheet. Thus, the fact that the capital contribution is considered to be exempt from the ISD has no consequence on the possibility to also benefit from a tax-free repayment of the capital contribution (withholding and income tax). It was thus determined by this decision that the elimination of losses in the commercial balance sheet was no longer a condition for benefiting from the ISD exemption. According to this case law, it is therefore now possible to claim both the exemption from ISD and the exemption from withholding tax in case of repayment of this contribution, subject to compliance with the relevant formal conditions.


This decision shows that it is no longer necessary to balance the advantages of the capital contribution principle (by recording reserves from capital contributions) against the ISD exemption in a reorganization, as it is possible to benefit from both without having to compensate losses in the balance sheet by means of the additional payment made by a direct holder of the participations.


However, it is important to note that the FTA has appealed against this decision to the Federal Supreme Court. Indeed, the tax losses related to the exemption of ISD and withholding tax in connection with such reorganization measures has forced the FTA to act against this recent case law, deciding at the same time to maintain the status quo until the final decision of the Federal Supreme Court. Thus, an application for exemption from the ISD (Form 4) should not be considered by the FTA if it is also accompanied by an application for recognition of reserves from capital contributions (Form 170).


If this decision were to be confirmed by the Federal Supreme Court, it would mean the end of tax arbitrage in the reorganization of a company. In our opinion, this would be excellent news, as the fact is that during a reorganization, the direct holder(s) of participation rights make a contribution, in order to allow the company's activities to continue. The benefit of a ISD exemption is a tax incentive that should not run counter to the principle of capital contribution which has been enshrined in law for many years now. Therefore, it is consistent that a shareholder can benefit from a tax-free repayment of the efforts made when the company's financial situation was in the red. It will therefore be particularly interesting to follow the decision of the Federal Court in this respect