An attractive but fiscally sensitive financing mechanism

The sale and leaseback is an attractive financing tool that allows a company to free up cash while retaining the use of a real estate asset. The transaction involves selling a building to a third party and then immediately leasing it back.

While this mechanism offers clear economic advantages, its tax treatment warrants special attention. Indeed, even though the economic use of the property remains unchanged, the transaction is generally considered a real estate sale, resulting in immediate tax consequences.

Taxation that is generally immediate

A Classification of Real Estate Disposal

From a legal standpoint, a sale-and-lease-back transaction involves a transfer of ownership. The fact that the seller continues to operate the property has no impact on taxation.

Transfer Taxes and Capital Gains

In most Swiss cantons, such a transaction therefore triggers the collection of transfer taxes, as well as, where applicable, the taxation of capital gains.

A possible exception in the event of restructuring

Strict conditions recognized by the Federal Court

There is, however, an exception to this principle in the case of intra-group restructurings, particularly in the context of mergers, demergers, or transfers of assets.

However, this exception must be interpreted narrowly. As the Federal Court has noted, only a genuine economic reorganisation can justify an exemption.

A Rarely Applied Exception in Practice

In practice, a sale-and-lease-back transaction motivated by financing objectives generally does not meet these criteria.

An Application That Varies Significantly by Canton

Vaud and Fribourg: Regulated Exemptions

The implementation of this exception varies significantly by canton, as transfer taxes fall under their jurisdiction.

The canton of Vaud thus provides for an explicit exemption in the event of restructuring. The law refers directly to the applicable tax rules regarding direct taxes, which offers a degree of legal certainty, although the conditions remain strict.

The canton of Fribourg also provides for an explicit exemption from transfer taxes in the event of restructuring, with a reference to the applicable tax provisions and a tax recovery mechanism in the event of a violation of the conditions, which brings its regime closer to that of the canton of Vaud.

Geneva and Valais: More Restrictive Approaches

In Valais, the law on transfer taxes does not provide for an explicit exemption in the event of restructuring. While an exemption may be considered under federal law, particularly Art. 103 of the Federal Merger Act (LFus), its application remains uncertain and depends largely on administrative practice.

The canton of Geneva also takes a more restrictive approach. The legislation generally provides for the taxation of real estate transfers, including when they occur as part of restructuring transactions such as mergers.

Federal Supreme Court Ruling – Concept of Restructuring (Case from Vaud)

In a recent ruling (ATF 138 II 557), the Federal Supreme Court revisited the conditions that must be met to qualify for an exemption from transfer duties in the event of a restructuring. In its ruling, the Federal Supreme Court noted that the wording of the Vaud law was identical to that of Art. 103 LFus and that the latter article referred to the concept of restructuring within the meaning of Art. 24 para. 3 and para. 3quater LHID.

The Federal Court also cites scholarly opinions stating that this reference is ill-advised given that transfer tax is an indirect tax levied on legal transactions and not a tax on income or profit. Furthermore, it notes that the basis for calculating transfer tax is, in principle, the full sale price and not the capital gain realized, as is the case with direct taxes (consideration 5.2). Taking these factors into account, the Federal Supreme Court is of the opinion that “the condition that business assets be carried over at their last value relevant for-profit tax, as provided for in Art. 24 para. 3 LHID, cannot therefore constitute a condition for exemption from transfer tax.”

Thus, it follows from this Federal Supreme Court ruling that the condition of a transfer at the last value relevant for income tax is not necessary to qualify for the transfer tax exemption under Art. 3(1)(i) of the Transfer Tax Act (LMSD) and Art. 103 of the Merger Act (LFus).

Conclusion : Plan Ahead to Secure the Transaction

The sale and leaseback is an effective financing tool, but one that is tax sensitive. While an exemption from transfer tax may be considered in the event of a restructuring, its implementation depends heavily on the canton in question and remains limited in practice.

In this context, a thorough preliminary analysis and, where appropriate, obtaining a ruling, can help ensure the tax treatment of the transaction and avoid unexpected tax consequences.

Our teams at RSM Switzerland are happy to assist you in analysing and implementing your real estate transactions to ensure their tax treatment is secure.