Management-buy-out
and employee shares

If several employees acquire the shares of the operating company via an acquisition company as part of a management buy-out, it must be assessed whether the shares of the new company are deemed to be employee shares within the meaning of Art. 17a DBG or the corresponding cantonal legal provision.

The qualification of shares as employee shares can have very significant tax consequences in that a so-called "excess profit" (the portion that exceeds the private tax-free capital gain as part of the formula valuation) is subject to income tax. However, according to section 3.4.4 of the FTA circular no. 37 dated October 30, 2020, founder shares in particular are explicitly not employee shares, which would allow taxation of the excess profit.

It is sometimes argued in the literature that the acquisition of shares as part of a management buy-out via an acquisition company does not constitute employee shares. However, this question has not yet been clarified by the Federal Supreme Court. In our opinion, the focus of such a management buy-out is on the position as a shareholder and not as an employee, which is why the shares should be founder shares and not employee shares.

The cantons do not appear to have a uniform practice on this issue. However, the canton of Zurich in particular considers such management buy-outs to be employee shares and does not grant any rulings that could exclude qualification as employee shares from the outset in the sense of founder shares. The canton of Zurich wants to protect itself in this way in order to be able to tax any excess profit during the first five years.

The Zurich practice creates considerable uncertainty for the shareholders concerned. If such founder's shares are sold within five years, discussions with the tax authorities must be sought be-fore the sale in order to quantify the extent of any excess profit.

A careful analysis of the tax options is essential in each individual case.