Exercise caution in the sale of privately held shares
Are you perhaps thinking of selling your company? Then exercise caution. According to a Federal Court decision of April 2015 (BGE 2C_618/2014), tax-free capital gains that are realised or a part thereof can represent income from paid employment. In addition to tax law risks, there are also issues concerning social security tax law in the case of the reclassification of normally "tax-free capital gains" into "taxable income from paid employment."
When selling shares, a reclassification of "private capital gains" into "income from paid employment" can give rise to income tax. This is most likely in cases involving a continuation of the employment relationship and deferred purchase price payments.
Even upon ending the employment relationship at the time the shares are sold does not do away with the risk. A waiver of bonuses in the past years or a salary that is not in conformity with market conditions and therefore excessive can lead to the same consequences.
Moreover, there are social security tax law consequences that result from reclassification. Paid employment is subject to the duty to make contributions to the AHV (Alters- und Hinterlassenenversicherung = Old Age and Survivors' Insurance).
Therefore, caution is advised above all in cases involving the preparation of sales contracts involving deferred purchase price payments. It is recommended to take up contact with tax officials and regulate possible procedures by means of preliminary tax assessment notices in advance.
We would be happy to help you in this regard.
- Article "Ist der steuerfreie private Kapitalgewinn bei Gesellschaftsverkauf gefährdet?" (Private Magazin Q3/2016; in German)
- Factsheet "Unternehmensnachfolge" (company succession)
- Federal Court Decision (BGE 2C_618/2014)