On 1 February 2022, the Swiss Federal Tax Administration (“SFTA”) published the revised Circular Letter (“CL”) 5a regarding Reorganizations. It replaces the old CL 5 dated 1 June 2004.

The original CL 5 published in 2004 needed to be refreshed as a lot has happened in the field of Swiss taxation in the last decade. Indeed, after two major tax reforms (the Corporate Tax Reform II (“CTR II”), in force since 2009, and the Tax Reform and AHV-Financing (“TRAF”), in force since 2020) and several Supreme Court decisions as well as changes in the SFTA administrative practice on topics covered by CL 5, this revision had become essential. After consultation of interested parties during 2021, the SFTA has finally published the new version, the CL 5a dated 1 February 2022.

Changes made to reflect the two major tax reforms

The adjustments to the tax reforms do not lead to a change of the administrative practice by the SFTA, as the SFTA had adapted its practice to the new legal bases and applied the new legal concepts and thresholds where applicable. Therefore, the CL 5a brings a simplification of the argumentation and legal certainty where in the past one had to justify all diverging points from the CL 5 by quoting several legal bases.


During the legislative process of the CTR II, it had been deliberated to introduce articles regarding the transposition, indirect partial liquidation, and the partial taxation of dividends. However, due to urgency, the parliament introduced in 2006 the article regarding transposition and indirect partial liquidation before the rest of the CTR II (Art. 20a Federal Direct Tax Act). CL 5a has now been adapted to reflect both amendments to the law and now explicitly refers to the articles regarding transposition, indirect partial liquidation, and the partial taxation of dividends.

The CTR II has reduced the minimum shareholding required to claim the participation exemption from 20% to 10%. Consequently, all thresholds in the CL 5 relating to this minimum shareholding requirement have been adjusted accordingly.

The CL 5a was also adjusted to reflect the introduction of the capital contribution principle and the changes due to the introduction of CL 29b dated 23 December 2019 on the Capital Contribution Principle.


Similarly, the CL5a reflects the introduction of the immigration step-up and the 50/50 rule with regard to the distribution of capital contribution reserves by listed companies.

Changes and clarifications due to case law

There are not many Supreme Court decisions on the tax implications of restructurings. With the topic being highly technical and the amounts at stake usually quite significant, taxpayers usually pre-discuss all relevant matters with the tax authorities prior to implementing them. Nevertheless, some cases were brought in front of our high courts and the Swiss Federal Supreme Court (“SFSC”) and the Swiss Federal Administrative Court (“SFAC”) issued several key decisions on issues relating to the old CL 5.

As with the changes due to the tax reforms, the SFTA had already adjusted its practice to the respective court decisions when applying CL 5. CL 5a is now formally updated to reflect those changes.

The following list covers the most important instances where these decisions led to a change or a clarification of the administrative practice:

  • Decision 2C_34/2018 dated 11 March 2019 by the SFSC: overturned the administrative practice under CL 5 regarding business requirements (“Betriebserfordernis”) relating to holding demergers. If a holding company meets the conditions in CL 5a ciph., it can now be considered as a business.
  • Decision A-1592/2006 dated 15 April 2009 by the SFAC: overturned the administrative practice under CL 5 relating to the levying of the share issuance tax in cases where a demerger is not tax neutral for corporate income tax purposes. Contrary to the former view by the SFTA, the share issuance tax is not automatically due in such a case, as the share issuance tax rather follows a civil law perspective (CL 5a ciph. 4.3.5).
  • Decision 2C_732/2016, 2C_733/2016 dated 5 September 2017 by the SFSC: clarified in case of a conversion of a partnership into a corporation that the remaining assets must not constitute a business (CL 5a ciph.
  • Decision 2C_351/2011 dated 4 January 2012 by the SFSC: clarified the administrative practice under CL 5 regarding the use of reportable losses after a merger. As per the new practice, if the merger– by applying a dynamic perspective – has no economic reasons, reportable losses may no longer be used after the merger (CL 5a ciph.,

Changes and clarifications in the administrative practice of the SFTA

Since 2004, there were also several changes in the administrative practices of the SFTA. These are now also reflected in CL 5a.

The current administrative practice of the SFTA for example allows partially tax-neutral reorganizations (CL 5a ciph. 2.2.1 para. 6, ciph. 2.2.2 para. 6, ciph. 2.4.1 para. 2, ciph. 2.4.2 para. 6). It also abandoned the blocking period for share issuance tax purposes (CL 5a ciph. Contrary to CL 5 ciph., which has been removed in CL 5a, an intra-group transfer of a participation to a foreign group company (even if ultimately held by a Swiss company) may now be subject to withholding tax. Furthermore, in case of emigration demergers, the direct beneficiary theory applies for withholding tax purposes (CL 5a ciph. Spin-offs of participations with timely absorption (i.e., absorption within 5 years) are treated analogous to cases of a quasi-merger with timely absorption leading to the reorganization not being tax neutral (CL 5a ciph.

CL 5a also reflects several clarifications of the administrative practice. For example, it is now even clearer stipulated that the civil law implementation of a reorganization is not relevant for the qualification from a tax perspective (CL 5a ciph. 1 para 2, ciph. 2.2.1 para. 5, ciph. 2.2.2 para. 5). Clarifications were also made with regard to blocking period violations in connection with partial divestments (CL 5a ciph. and to the withholding tax treatment of merger losses / disagios in upstream and downstream mergers (CL 5a ciph., ciph.

Application of CL 5a

The CL 5a is dated 1 February 2022. Please note that from a timing perspective, changes in the practice of the SFTA in favor of taxpayers, which are not based on a change in the law, are to be applied to all open tax assessments whereas changes to the disadvantage of taxpayers are in principle only applied from the publication of the new practice, here as of 1 February 2022.

How EY can help

Please do not hesitate to reach out to us in case of any questions regarding the updated CL 5a.