Tax exemption for holding foundations

A "holding foundation" is a foundation that holds an interest in another company and can therefore exercise influence over a company by exercising voting rights. The conditions under which a holding foundation can be tax-exempt are controversial among experts. After a brief list of the conditions for tax exemption in general, the following article shows the legal conditions and the controversial points in the case of a holding foundation, taking into account the leading decision of the Federal Supreme Court from 2021.

Requirements for tax exemption in general

According to the law, legal entities that pursue public or charitable purposes are exempt from tax on profits that are exclusively and irrevocably dedicated to these purposes. In principle, business purposes are not charitable.

According to Jurisprudence , charitable status requires an activity in the public interest as well as altruistic action. In addition, the law requires that the funds of the legal entity remain exclusively earmarked for the charitable purpose, i.e. that the earmarking is irrevocable. Finally, the legal entity must actually use the funds for the charitable purpose (see further details on the requirements in our blog post "Tax exemption due to charitable status").

Special conditions for the tax exemption of holding foundations

The pursuit of entrepreneurial purposes therefore contradicts a charitable purpose and thus, in principle, a tax exemption.

According to the law, however, a so-called "holding foundation" that acquires or manages significant equity interests in a company and is therefore also entrepreneurially active in principle can be classified as charitable by way of exception if the foundation fulfills the following requirements:

1. the holding foundation fulfills the general requirements for tax exemption on the grounds of charitable status and therefore has a charitable purpose.

2. the holding foundation subordinates its interest in maintaining the company to the charitable purpose.

3. the holding foundation may not exercise any management activities at the company held.

What exactly is meant by the two specific requirements for holding foundations is explained below:

Non-exercise of managerial activity

According to circular no. 12 issued by the FTA in 1994, a clear organizational and personal separation of the foundation board and the board of directors is required. Preventing influence on company management in the case of an equity holding is possible in particular if another legal entity holds the voting rights and the holding foundation therefore only has an equity holding.

The condition imposed by the FTA that no exertion of influence is permitted is increasingly being criticized by academics. Only the actual purpose of the foundation is decisive. The holding of participations and the associated exertion of influence within the scope of the possibilities under company law are deemed to be asset management. Even voting control should not be an obstacle to tax exemption as long as the holding foundation is active in a charitable capacity. Rather, exerting influence through the charitable foundation is in line with "good foundation governance", which means offering a holistic protection system and protecting the company from conflicts of interest and misconduct (see Opel, Steuerbefreiung von Holdinggesellschaften, in: IFF Forum für Steuerrecht 2021, 349).

Subordination of the interest in maintaining the company

The law also requires that the interest in maintaining the company is subordinate to the charitable purpose.

The FTA derives from this an obligation to make substantial distributions of profits from the company held ("the foundation must be regularly supported by the company with significant contributions").

In its leading decision(BGer2C_166/2020 of May 10, 2021), the Federal Supreme Court did not directly comment on the distribution obligation. Rather, the decisive factor for the denial of tax exemption in the case under review was that the foundation invested all of its assets in a subsidiary and thus did not sufficiently diversify its assets. The foundation's ability to pursue its objective in the long term therefore depended exclusively on the development and survival of the former company. Therefore, the interest in the preservation of the company could not be considered subordinate.

In doctrine, it is undisputed that there is a kind of distribution obligation in the sense of subordination to the maintenance of the company. However, the regular and substantial distributions required by circular no. 12 are considered too far-reaching in the doctrine. According to Opel, the company must make distributions to the holding foundation, but the company should not be prevented from forming reserves. Rather, the aim or benchmark should be that the holding foundation can continue to fulfill its charitable purpose (see in particular Opel, Steuerbefreiung von Holdinggesellschaften, in: IFF Forum für Steuerrecht 2021, 351).


According to the statutory provisions, a so-called holding foundation may not place the preservation of the company held above the purpose of the foundation. The distribution obligation derived from this by the FTA is undisputed in principle in the doctrine. However, the doctrine considers it too rigid that a regular and substantial distribution is required.

In its leading decision, the Federal Supreme Court did not explicitly comment on a distribution obligation, but denied the tax exemption in the specific case due to a lack of asset diversification (full participation or investment in a company), which means that, according to the court, the subordination of the maintenance of the company in which the foundation holds an interest is excluded per se from the charitable purpose of the foundation.

In view of this Jurisprudence, it is questionable how the cantonal tax authorities review this additional criterion. For example, the application of threshold values relating to diversification could be considered, which, as far as can be seen, have not yet been developed.