top of page

Transposition – an exception to the private capital gains exemption

A contribution from Daniel Gatenby and Philippe Kenel, Python

One of the peculiarities of the Swiss tax system stems from the principle that capital gains realised by individuals on their private assets are exempt from income tax (art. 16 al. 3 of the Federal Act of 14 December 1990 on Federa direct tax; hereinafter: “FDTA”). As with any principle, there are certain exceptions, including that resulting from «transposition», a theory originally developed by case law which was then codified in article 20a paragraph 1 letter b FDTA. We will begin with a brief presentation of the principle of capital contributions, then go on to explain the concept of «transposition» in Swiss tax law, reviewing its conditions and tax consequences. We will conclude with an example.

Principle of capital contributions

Until 31 December 2010, any benefit granted by a company to a shareholder was considered a taxable return if it was not a repayment of the nomina ca pital. Article 20 paragraph 3 FDTA, came into force on 1 January 2011. This new regime treats any repayment of capital contributions, premiums and additional payments made by a shareholder in the same way as a repayment of capital. Since the introduction of this regime, when a com pany makes a distribution, it is necessary to assess whether it comes from capital, from contributions (reserves from other capital contributions: ROC) or from other reserves. Circular no. 29c of the Federal Tax Administration of 23 December 2022 specifies that capital contributions, premiums and additional payments made by a shareholder are deemed to be ROC if they have been openly accounted for as such (Circular 29c, 2.1, p. 5). In the absence of separate accounting, these contributions form part of the “other reserves” that are fully taxable in the event of a distribution.


Under article 20a paragraph 1 letter b FDTA, a taxable return on movable assets arises when a private individual sells or contributes shareholdings in a company - which he holds in his private assets - to a company he controls, for an amount in excess of the nominal value of the said shareholdings. The justification for such taxation is as follows: before carrying out such a transaction, the taxpayer held participations on which there was deferred taxation, i.e. open and/or deferred reserves, which would be taxed when they were distributed or when the company was liquidated. By selling or contributing these holdings to a company that he controls, he receives in return a value that is not taxed when it is repaid, i.e. share capital or a receivable from the company. He has thus “transposed” a taxable value into a tax-exempt value. Ultimately, the taxpayer has not really sold his shareholdings, but has restructured his assets by eliminating the deferred tax attached to them.


Article 20a paragraph 1 letter b FDTA sets out four cumulative conditions for the tax authorities to consider that a transaction qualifies as a taxable transfer:

1. Transfer of an interest in the capital of a capital company

Until 31 December 2019, the law stipulated that the transferred holding had to represent at least 5% of the company’s capital. Since 1 January 2020, this threshold has been abolished, so that any percentage of holding can meet this criterion, including isolated shares or small portfolios of securities.

2. A change of system

The securities must be transferred from the taxpayer’s private assets to the commercial assets of a company.

3. Control of the seller over the buyer

The transferor (by sale or contribution) must hold at least 50% of the capital after the transfer.

This control may be exercised by several persons carrying out the transfer jointly.

4. A compensation in excess of the nominal value and the proportional share of the ROCs of the shareholding transferred

This is a condition to which particular attention should be paid. As explained below, it determines the extent of taxation.

The Federal Court recently handed down a ruling on the subject of transposition, stating that the conditions listed above are objective and that it is not possible to eliminate taxation by demonstrating that the transaction was carried out for reasons other than taxation (ATF 9C_679/2021 of 20 April 2023).


Daniel Gatenby [ LL.M. Tax, lawyer in Pully-Lausanne and Geneva, Python ] Philippe Kenel [ Doctor of Law, lawyer in Pully-Lausanne, Geneva and Brussels, Python ]


bottom of page