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JULY 2013
Legal Focus
93
be underestimated, since in many nations, employment continuance of the local staff and management becomes conditional for the M&A deal.
Last but not least, among the various types of risk that investors face are also legal and regulatory challenges that can have serious financial implications if they are not properly managed. Especially different tax systems (see below) and high risk jurisdictions are of big importance. Many jurisdictions indicate a variety of restrictions on the parties’ discretion to choose. That causes legal uncertainty in case of dispute. With respect to the choice of law, the majority of the jurisdictions indicate that the two key factors taken into consideration are the link between the parties and the choice of law and the reputation associated with the law (e.g., coherence, stability,). Given the possibility of a dispute arising at some stage between the M&A parties, it is crucial to give adequate thought in advance to the dispute resolution provision. Most international M&A agreements incorporate a choice of law and jurisdiction clause. Failure to agree a suitable dispute resolution forum and procedure could have significant implications in the case of an eventual dispute. Arbitration is a popular choice in the context of cross-border M&A disputes, since it is usually more flexible procedure than court litigation.
What regulatory restrictions are there?
No material restrictions apply and generally there is no need for government authorization with regard to foreign investors purchasing share or assets of Swiss entities. However, certain exceptions apply for regulated industries, such as banks and insurances where special requirements, government approvals or notification duties may apply. As a general rule, M&A transactions are regulated by general corporate and contract law provisions contained in the Swiss Code of Obligations (CO). In addition, other legislations are relevant as well, such as the Federal Law on Merger, Demerger, Conversion and Transfer of Assets and Liabilities. Last but not least, the corporate governance issues have become a hot issue in Switzerland as well. The Swiss Business Federation has edited for instance a Swiss Code of Best Practice, with the aim to increase transparency and disclosure policy within listed companies.
What are the key taxation considerations for investors when embarking upon mergers and acquisitions in your jurisdiction?
The Swiss tax system and Switzerland’s extensive network of double tax treaties (DTTs) offers attractive structures for M&A activities. It is often considered a tax haven due to its general low rate of taxation and the various tax exemptions
or reductions available to Swiss companies doing business abroad, or foreign persons resident in Switzerland. Switzerland has last but not least one of the world’s most stable economies. Nevertheless, there are also some challenges in the Swiss tax legal system. The taxes in Switzerland are regulated in substantially different ways by cantonal and federal statutes. Briefly worded, whether an acquisition is executed in the form of an asset or a share deal, leads to different tax implications for both the seller and acquirer. Acquirers usually prefer asset deals to limit their risks from the acquired business and achieve a step-up in value, whereas sellers usually prefer share deals, which usually produce tax-exempt capital gains. Furthermore, the acquisition of a Swiss business or Swiss target company should be carefully structured, because the choice of acquisition tool will influence the subsequent tax rate.
In your experience, what are the most common challenges that arise? How do you assist your clients in overcoming these challenges?
The continued strength of the Swiss Franc and a stable economic situation in Switzerland are very attractive to Swiss acquirers what provides an incentive to invest in cross-border M&A transactions.
Kellerhals Attorneys at law has M&A specialists that can offer a breadth and depth of resources to buyers and sellers including tax, competition, employment, property and IT/IP. Kellerhals advises a range of different clients, including quoted, private and foreign-owned companies, financial institutions, equity investors, management
teams and
entrepreneurs on all aspects of buying and selling companies and businesses, often involving a cross-border element. LM
Contact:
dr. thomas Bähler, LL.M., Partner dr. Anna-Antonina Gottret, LL.M. Kellerhals Anwälte Effingerstrasse 1 Postfach 6916 CH 3001-Berne
dr. thomas Bähler dr. Anna-Antonina Gottret