The Federal Tax Administration (FTA) has taken the legal changes that have occurred since the issuance of Circular no 5 of 1 June 2004 (Circular 5), in particular regarding TROF, as an occasion for a comprehensive revision of the Circular. The new Circular no 5a (Circular 5a) concerning tax neutral reorganizations was published on 1 February 2022 and enters into force upon publication. Apart from editorial changes, only a few material amendments were made. The structure of Circular 5a remains unchanged compared to Circular 5. The most important amendments can be summarized as follows:
- Capital contribution reserves: The various reorganization scenarios were supplemented with regard to their consequences for capital contribution reserves.
- Partially tax-neutral restructuring: If, in the course of a reorganization, hidden reserves on individual assets are not transferred in a completely tax-neutral manner by increasing the relevant fiscal book values to a value below fair market value, the difference between the fiscal book values before and after the reorganization will, in principle, be subject to corporate income tax at the level of the transferring company. The transferred hidden reserves will not be taxed.
- The term “Subsidiary” within the meaning of Circular 5a still applies to companies in which a participation quota of at least 20% is held. However, the tax-neutral spin-off and replacement of an investment now only require a minimum participation quota of 10%. For the tax-neutral transfer between group companies, a participation quota of at least 20% is still required.
- Holding company demerger: In case of a holding company demerger, the fiscal requirement of transferring a business can be met either at the level of the holding company or at the level of its operating subsidiaries (so-called “transparency principle”). The business requirement now only requires the holding of more than 50% in an operating subsidiary.
- Issuance stamp tax in the event of violation of the blocking period: The tax neutrality of the spin-off of participations requires compliance with a blocking period of five years. Since there is no legal basis for levying the issuance stamp tax in the event of violation of the blocking period, the latter is no longer applicable under Circular 5a. The examination of a tax avoidance remains reserved.
- Newly, withholding tax is levied on the transfer of a participation to a foreign group company, even if the withholding tax basis is fully retained by a domestic company. The entitlement to a tax refund depends on the foreign group company’s eligibility for the respective treaty.