Indirect partial liquidation (IPL): the Swiss tax trap when selling an SME

IPL turns the tax-exempt capital gain from selling a Swiss SME into taxable income if the buyer extracts the substance.

Introduction: the tax-exempt capital gain, a Swiss privilege that IPL can wipe out

In Switzerland, selling the shares of your company held in your private wealth in principle generates a tax-exempt private capital gain, one of the country's key advantages. But this privilege is fragile: an anti-abuse rule can requalify part of that gain as taxable income, without the seller having anticipated it. This rule is called indirect partial liquidation, or IPL, codified in article 20a of the Federal Act on Direct Federal Taxation. It targets the case where a shareholder sells a company rich in cash and the buyer then extracts its substance to finance the price.

“Also deemed income from movable capital is the proceeds from the sale of a participation of at least 20%, representing a transfer from the private wealth of a natural person to the business assets of another natural person or of a legal entity, provided that non-operating substance, existing and distributable under commercial law at the time of the sale, is distributed within five years with the seller's participation.”, article 20a paragraph 1 letter a LIFD (author's rendering of the official French text).

Three factors make the topic pressing in 2026. First, the Federal Supreme Court recently confirmed the supplementary tax assessed against former shareholders (rulings 9C_665/2022 and 9C_666/2022 of 14 December 2023). Second, a legislative reform aimed at clarifying IPL is in preparation. Third, the multiplication of acquisitions through an acquisition holding or leverage mechanically increases the risk. This article, designed as a guide, explains what IPL is, its five cumulative conditions, the central notion of non-operating substance and how to quantify it, the five-year period, its cousins transposition and direct partial liquidation, the recent case law, its tax consequences and above all how to avoid it, from the standpoint of the seller of an SME.

Secure the capital gain of your sale before signing

IPL plays out before signing, in the structuring of the deal and the state of the sold company's cash. Book a first 30-minute call with Hectelion to frame the valuation, the perimeter of the substance and the structuring of your sale. Our team works on the valuation and the conduct of the transaction, in coordination with your tax adviser, with dual French and Swiss expertise and complete economic independence from traditional financial intermediaries. Hectelion is neither a law firm nor a tax adviser and does not provide tax advice: this article is educational.

Acontos: estimate your company's value online for free

Before structuring a sale, it is useful to know the value of your company and the weight of its cash. Acontos is Hectelion's online tool that combines audit, due diligence and business valuation: it analyses your accounts, normalises EBITDA and applies market multiples to produce a documented valuation range, distinguishing operating assets from surplus cash. Powered by Anthropic's Claude Sonnet 5 artificial intelligence and calibrated by our valuers, the Acontos simulator gives you an order of magnitude in a few minutes, free of charge and without storing your documents. A starting point before addressing tax structuring with your adviser.

Definition: what is indirect partial liquidation?

Indirect partial liquidation is an anti-abuse rule of Swiss tax law that requalifies as taxable income part of the normally tax-exempt capital gain realised on the sale of shares held in private wealth. The term is telling: the company is not liquidated directly, but the sale followed by the extraction of its substance produces economically the same effect as a dividend distribution, which the tax authority intends to tax. IPL appears in article 20a paragraph 1 letter a LIFD at the federal level and in article 7a paragraph 1 letter a of the Federal Act on the Harmonisation of Direct Taxation (LHID) at the cantonal level.

The Swiss principle is that the private capital gain is exempt, whereas a dividend is taxable as income from movable capital. IPL prevents a taxable dividend from being artificially turned into a tax-exempt capital gain. It does not apply to every sale: it requires the fulfilment of precise conditions, and it is the seller, not the buyer, who bears the supplementary tax when they are met. Understanding these conditions is therefore decisive for any director selling a company holding cash or assets not required for operations.

Origins: from case law to article 20a LIFD

IPL first emerged from the case law of the Federal Supreme Court, which already sanctioned, under the heading of tax avoidance, arrangements consisting of selling a company emptied of its substance shortly after the sale. This judge-made practice was codified by the Federal Act on the Reform of Corporate Taxation, which came into force in 2007 and introduced article 20a LIFD and its cantonal counterpart, article 7a LHID. The legislator thus brought legal certainty by setting objective conditions, notably the 20% threshold and the five-year period.

The provision was subsequently amended. Letter b of article 20a, on transposition, was modified by the Federal Act on Tax Reform and AHV Financing, in force since 1 January 2020. That same reform introduced the partial taxation of dividends from qualified participations, which bears directly on the requalified amount in the event of IPL. IPL is therefore not an old curiosity: it is a living mechanism, regularly refined by the courts, whose interpretation remains at the heart of Swiss SME sales.

Why IPL exists: tax-exempt capital gain versus taxable dividend

To understand IPL, one must grasp the fundamental asymmetry of the Swiss system. When a shareholder receives a dividend, it is taxed as income from movable capital, at federal and cantonal level, with partial taxation since 2020 for qualified participations. When they sell their shares held in private wealth, the capital gain is in principle exempt. A shareholder sitting on a company accumulating cash therefore faces a temptation: rather than paying themselves a taxable dividend, to sell the company to a third party who will then extract that cash.

IPL neutralises this circumvention. It considers that if the non-operating substance present at the time of the sale is distributed within five years with the seller's participation, then the seller has in reality realised a disguised dividend, not a pure capital gain. The aim is not to tax the sale of a healthy business, but to prevent the legal packaging of a sale from allowing income to escape tax. It is a logic close to that governing, in France, the framework of the contribution-sale mechanism: in both countries, tax law ensures that form does not prevail over economic substance.

The five cumulative conditions of IPL

IPL is triggered only if five conditions are met simultaneously. Breaking just one is enough to rule it out, which is why upstream analysis matters so much. First, the sale must concern a participation of at least 20% of the capital of a company limited by shares or a cooperative; aggregation applies where several shareholders sell together, or where several participations totalling at least 20% are sold within five years. Second, the deal must represent a transfer from the seller's private wealth to the business assets of the buyer, meaning a sale to a legal entity, typically an acquisition holding, or to a natural person who records the shares on their business balance sheet.

Third, there must exist, at the time of the sale, non-operating substance, existing and distributable under commercial law. Fourth, that substance must actually be distributed within the five years following the sale. Fifth, the distribution must occur with the seller's participation: article 20a paragraph 2 LIFD specifies that there is participation where the seller knows or should have known that funds would be taken from the company to finance the purchase price and would not be returned to it. This last condition, subjective, is often the battleground of disputes, as the seller argues they were unaware of the buyer's intentions, while the tax authority examines the contractual and financial indicators of the deal.

Non-operating substance: the heart of the calculation

The notion of non-operating substance is the centre of gravity of IPL. It refers to the reserves distributable under commercial law, present at the time of the sale, that are not required to continue the business. Surplus cash is the textbook example, but non-operating assets, investment property or participations unrelated to the business also fall within it. Circular no. 14 of the Federal Tax Administration, of 6 November 2007, specifies that the existence of non-operating substance is assessed according to business-economics criteria.

The requalified amount is capped: it cannot exceed the lowest of three items, namely the non-operating substance, the reserves distributable under commercial law, and the amount actually distributed. A company whose entire cash balance is required for the operating cycle therefore does not expose its seller to IPL, even in the event of a later distribution. Conversely, a company that has accumulated liquidity well beyond its needs constitutes fertile ground. This is why analysing working capital and normative cash is an essential prerequisite to any sale of an asset-rich company.

How to quantify non-operating substance

Moving from the notion to the figure is the most delicate step. The method consists of starting from the company's cash and financial assets, then deducting what is required by the business. One first isolates normative operating cash, the amount the business cycle needs to run smoothly, in connection with working capital and seasonality. One then identifies the reserves and provisions required to continue the business and to meet known commitments. The balance, meaning the surplus cash and financial assets, the investment property and the non-operating participations, constitutes the substance a priori not required for operations.

This amount must then be tested against two caps: the reserves distributable under commercial law, since only legally distributable substance can trigger IPL, and the effective distribution capacity. Circular no. 14 of the FTA recalls that the assessment is made according to business-economics criteria, which leaves room for discussion on borderline cases. In practice, the valuer produces a clear bridge, from total cash to surplus substance, which serves both to structure the deal, to calibrate a possible prior distribution and to support a ruling. This quantification is the bridge between the legal analysis and the price negotiation.

The five-year blocking period

IPL is not frozen on the day of the sale: it casts its shadow over the following five years. Any distribution of the existing substance occurring within that period may trigger requalification, provided the other conditions are met. This period has two practical consequences. On one hand, the risk does not extinguish at signing or at closing: the seller remains exposed for five years to a distribution decided by the buyer. On the other hand, aggregation over time applies, since several participations totalling at least 20% sold over five years can be added together.

This time frame requires the seller to anticipate. As they no longer control the company after the sale, they cannot physically prevent a later distribution. Their protection therefore runs through upstream structuring, contractual clauses, and the demonstration that they neither knew nor should have known that the substance would be extracted. The five-year period thus turns IPL into a deferred risk, which must be dealt with at the time of the negotiation and not discovered during a tax audit several years later.

IPL and transposition: the two traps of article 20a LIFD

Article 20a LIFD in fact houses two anti-abuse mechanisms. Letter a targets indirect partial liquidation, meaning the sale to a third party followed by the extraction of the substance. Letter b targets transposition, often summed up by the phrase “selling to oneself”. There is transposition where a shareholder transfers their shares, held in their private wealth, to a company they control by at least 50% after the deal, for a price higher than the sum of the nominal value and the capital contribution reserves. The excess is then taxed as income from capital.

The two traps are frequently encountered when setting up a holding on the occasion of a transfer. Contributing one's shares to one's own holding may amount to transposition; selling to a third-party acquisition holding that then distributes the cash may amount to IPL. Distinguishing the two is essential, because the conditions and thresholds differ: 20% and a transfer to a third party for IPL, 50% control after the deal and a price above the nominal value increased by the capital contribution reserves for transposition. A poorly structured transfer may fall into one or the other, with a supplementary tax at stake.

Direct partial liquidation: the company buying back its own shares

Indirect partial liquidation has a sibling that must not be confused with it: direct partial liquidation. It targets the case where the company itself buys back its own shares, rather than a sale to a third party. Under article 4a of the Federal Act on Withholding Tax, where a company acquires its own participation rights with a view to a capital reduction, or beyond the limits set by company law, the difference between the buyback price and the paid-in nominal value is deemed income, subject to the 35% withholding tax and taxable in the shareholder's hands.

Company law allows a company to hold its own shares up to 10% of the capital, a threshold raised to 20% in certain cases of transfer restriction, with the excess to be disposed of or cancelled within two years (article 659 of the Code of Obligations). On the tax side, article 4a of the Withholding Tax Act adds that even a buyback made within the authorised limits becomes a partial liquidation if the shares are neither resold nor cancelled within six years. The difference with IPL is therefore clear: direct partial liquidation plays out at the level of the company buying back its shares, indirect partial liquidation at the level of the seller who sells to a third party. Both lead to taxation as income, but by distinct routes that a well-designed transfer must anticipate in either case.

Tax consequences: supplementary tax and requalified amount

When IPL is established, the seller is taxed subsequently through a supplementary tax procedure, within the meaning of articles 151 to 153 LIFD for federal tax and of article 53 LHID for cantonal taxes. The requalified amount, capped as indicated, is added to the seller's income for the relevant year. Since 2020, this income benefits from the partial taxation of returns on qualified participations where the seller held at least 10% of the capital: at federal level, the taxable base is reduced to 70% of the amount, the cantons applying their own partial-taxation rates.

The supplementary tax comes with default interest and, depending on the circumstances, may be accompanied by an evasion procedure. The financial stake is therefore twofold: the tax on the requalified income, and the cost of the time elapsed between the sale and the audit. To this is added the withholding tax of 35% that strikes the distribution itself at the level of the company, recoverable by the beneficiary but generating a cash timing gap. IPL thus turns a deal the seller believed to be exempt into a significant tax charge, often discovered years later.

What the recent Federal Supreme Court rulings say

The rigour of IPL is not theoretical: it can be read in the recent case law. By its rulings 9C_665/2022 and 9C_666/2022 of 14 December 2023, the Federal Supreme Court ruled on supplementary tax procedures concerning Zurich cantonal tax and direct federal tax, in application of article 20a LIFD. The Court dismissed the appeals of former shareholders who contested the supplementary tax assessed against them, confirming that the requalification made by the authority rested on a correct application of the conditions of indirect partial liquidation.

These decisions remind sellers of several points. First, the supplementary tax may arise several years after the sale, on an old tax year, once the conditions were met. Second, the final charge falls on the seller, not on the buyer who decided the distribution. Third, the assessment of the subjective condition, what the seller knew or should have known, is made in the light of all the contractual and financial indicators of the deal. The 2023 case law therefore confirms that IPL is a very live risk, which only upstream structuring can rule out.

How to avoid IPL: structuring, financing and clauses

IPL is prevented, not corrected after the fact. Several levers exist, to be combined according to the situation. The first is to clean up the substance before the sale: distribute the surplus cash as an accepted dividend, taxable but controlled, so that the company sold no longer holds non-operating substance. The sale price is reduced accordingly, but the requalification risk disappears. The second lever concerns the buyer's financing: if the buyer finances the price from their own funds or through external debt, without taking the target's cash, and refrains from distributing the existing substance for five years, the distribution condition is not met.

The third lever is contractual: the sale contract can prohibit the buyer from distributing the existing substance during the five-year period, back this obligation with a warranty and provide for an indemnity to the seller in the event of supplementary tax triggered by the buyer. This clause protects the seller on the ground of the subjective condition, by demonstrating that they did not take part in an extraction scheme. The fourth lever, often decisive in borderline cases, is the tax ruling. These defences require close coordination between the tax adviser, the lawyer and the transaction adviser, from the outset of the deal and not on the eve of closing.

The tax ruling to secure the deal

The tax ruling is the securing instrument par excellence under Swiss law. It consists of submitting to the cantonal tax administration, and where applicable to the Federal Tax Administration, a precise description of the contemplated deal and obtaining its written position on the tax treatment, notably on whether or not non-operating substance exists and on the IPL risk. A ruling obtained in good faith binds the administration, provided the deal is carried out in accordance with the description submitted.

The ruling is particularly useful where the qualification of the substance is debatable, where the acquisition structure is complex, or where the seller wants to objectivise the absence of participation in an extraction scheme. It does not dispense with rigorous structuring, but it turns uncertainty into a position known in advance. This approach fits into the broader logic of tax securing that we describe in our publication on the advance tax ruling in France and Switzerland. On a file exposed to IPL, the cost of a ruling is out of all proportion to that of a supplementary tax.

When IPL threatens a deal

Some configurations call for particular vigilance. The first is the sale of an SME to an acquisition holding financed by leverage, in an internal or external buyout: the buyer then has an interest in pushing up the target's cash to repay their debt, which is precisely the trigger of IPL. The second is the asset-rich company accumulating cash or non-operating assets well beyond its needs, whose sale naturally attracts the tax authority's attention.

The third configuration is the poorly sequenced family transfer, where the contribution to a personal holding then the sale may cross IPL and transposition. The fourth is the staggered sale, where several blocks sold over five years together cross the 20% threshold or trigger the aggregation of distributions. In all these cases, the difference between a smooth sale and a supplementary tax comes down to anticipation. The structuring of a sale also differs significantly between France and Switzerland, which makes local support all the more useful.

IPL and the non-resident seller: the international dimension

Indirect partial liquidation presupposes a seller taxable on income in Switzerland: it is with them, a Swiss resident holding their participation in private wealth, that the requalification produces its effects. The question shifts when the seller is not a resident. A seller domiciled abroad is in principle not subject to Swiss income tax on the gain realised on movable securities, so that the supplementary tax mechanism of article 20a LIFD does not reach them in the same way. However, the later distribution of the substance remains struck, at the level of the company, by the 35% withholding tax, whose recovery depends on the applicable double taxation treaty.

Cross-border French-Swiss situations therefore call for a two-level analysis: the treatment of the gain in the seller's hands according to their residence, and the fate of the withholding tax on any distribution, under the treaty between France and Switzerland. A French seller disposing of a Swiss company, or a Swiss resident disposing of a foreign company, are not in the same position as the base case. This international dimension, crossing residence, source and treaties, belongs to the tax adviser and must be settled with them, this analysis remaining educational and centred on the case of the Swiss-resident seller.

Decision tree: am I exposed to indirect partial liquidation?

For a director preparing a sale, a few successive questions help situate the risk, subject to the tax adviser's analysis. The first: does the participation sold reach at least 20% of the capital, alone or by aggregation with other blocks sold over five years? If not, IPL is ruled out. The second: does the buyer record the shares in business assets, typically a holding or a legal entity? If the buyer is a natural person acquiring in their private wealth, the condition of transfer to business assets is absent.

The third question: does the company hold, at the time of the sale, non-operating substance distributable under commercial law? If all the cash is required for the operating cycle, the risk falls away. The fourth: is that substance likely to be distributed within five years, notably to finance the price or deleverage the buyer? The fifth: does the seller know or should they know that funds will be taken to finance the price? When the five answers converge towards the risk, upstream structuring, the non-distribution clause and the ruling become indispensable. This tree is only a first filter: each branch deserves a detailed analysis with a tax adviser.

Who to call on to secure a sale exposed to IPL

A sale exposed to IPL mobilises three complementary skill sets. The first is tax and legal: qualifying the substance, structuring the deal, drafting the protective clauses and, where appropriate, obtaining a ruling. This competence belongs to the tax lawyer and the tax adviser, with whom Hectelion works in coordination. The second is financial: valuing the company by distinguishing operating assets from surplus cash, sizing the non-operating substance and modelling the impact of a prior distribution on the price. The third is transactional: running the negotiation and articulating the tax structuring with the terms of the sale contract.

Hectelion supports directors and shareholders on the financial and transactional aspects, with dual French and Swiss expertise and economic independence from banks and financial intermediaries. Our firm acts on transactions from 2 to 500 MCHF, valuing the company according to a methodology aligned with IVSC standards and structuring the transaction in connection with the client's tax advisers. Hectelion is neither a law firm nor a tax adviser, is not FINMA-authorised and does not act on listed companies: on IPL, tax advice remains the preserve of the tax lawyer.

Benefits: certainty, predictability and preservation of the capital gain

Anticipating IPL offers substantial benefits. First, it preserves the tax-exempt capital gain, which is one of the main tax advantages of selling a business in Switzerland: a well-structured deal protects this privilege rather than seeing it requalified. Second, it brings predictability: a seller who has cleaned up the substance, structured the financing and, where appropriate, obtained a ruling knows their tax charge in advance, with no unpleasant surprise years later.

Third, anticipation secures the net price received. The headline price means nothing if a supplementary tax amputates it after the fact; by dealing with IPL upstream, the seller negotiates on a net price whose taxation they control. Fourth, the approach strengthens the negotiating position: a clean file, where the question of substance and distributions is dealt with contractually, reassures the buyer and smooths the transaction. The rigour of the structuring therefore pays off in peace of mind and in value actually received.

Limits: grey areas and cantonal assessment

IPL carries areas of uncertainty that must be faced squarely. The first relates to the notion of non-operating substance, whose assessment, based on business-economics criteria, leaves room for interpretation: what is surplus for one may be judged useful to the business by the other. The second relates to the subjective condition of the seller's participation, which rests on what they knew or should have known, fertile ground for disputes and for the authority's appreciation of the indicators.

The third limit is that the seller does not control distribution decisions after the sale: their protection runs through contractual clauses whose effectiveness depends on their drafting and on the buyer's solvency. The fourth relates to the variability of practice between cantons and to the evolution of case law, as the recent Federal Supreme Court rulings illustrate. Finally, a ruling is not always granted on the terms sought, and it does not erase an arrangement that would otherwise constitute tax avoidance. These limits do not condemn the deal, but they impose rigorous preparation and close coordination with the tax adviser.

The 5 mistakes to avoid

Mistake 1: believing the tax-exempt capital gain carries no tax risk

Many directors take the exemption of the capital gain for granted and never imagine that part of it could be requalified as income. It is precisely this confidence that exposes them to IPL. Any sale of a company holding cash or non-operating assets must be analysed through the IPL lens before being concluded.

Mistake 2: selling a cash-rich company without cleaning up the substance

Selling a company loaded with liquidity not required for operations, without a prior distribution or contractual protection, offers the buyer the temptation to extract that substance, and the seller the risk of requalification. Sizing and dealing with the non-operating substance is a prerequisite, not an option.

Mistake 3: neglecting the non-distribution clause in the contract

As the seller no longer controls the company after the sale, the absence of a clause prohibiting the distribution of the existing substance for five years leaves them without protection on the subjective condition. A non-distribution clause backed by a warranty and an indemnity is an essential safeguard.

Mistake 4: forgetting the five-year period

Believing the risk extinguishes at signing or at closing is a classic mistake. IPL is triggered by any distribution of the existing substance occurring within the five years following the sale. The seller remains exposed throughout that period, which must be dealt with contractually.

Mistake 5: skipping a ruling on a borderline case

On a file where the qualification of the substance is debatable or the acquisition structure complex, forgoing a tax ruling to save money is a poor calculation. The cost of a ruling is out of all proportion to that of a supplementary tax with default interest discovered several years later.

Case 1: a Geneva sale triggering IPL, supplementary tax on 1.4 MCHF

A natural-person shareholder in Geneva sells 100% of a services SME, held in their private wealth, for a price of 8.0 MCHF. The company holds surplus cash, not required for operations and distributable under commercial law, of 2.0 MCHF at the time of the sale. The buyer, an acquisition holding, finances part of the price by pushing up this cash as a dividend within the three years following the sale, which the seller knew given the financing structure.

The five conditions are met: participation above 20%, transfer from private wealth to the business assets of a legal entity, non-operating substance of 2.0 MCHF existing at the time of the sale, distribution within five years, seller's participation within the meaning of article 20a paragraph 2 LIFD. The 2.0 MCHF are requalified as income from capital. As the seller held more than 10%, partial taxation applies: at federal level, the taxable base is reduced to 70%, i.e. 1.4 MCHF added to their income, taxed at the federal and Geneva cantonal rates through a supplementary tax procedure, with default interest. The capital gain on the remaining price stays exempt. A supplementary tax that could have been avoided had the deal been structured upstream.

Case 2: a Vaud sale structured to preserve the exemption

A Vaud shareholder sells their industrial SME, held in their private wealth, which also holds surplus cash of 2.0 MCHF. Advised upstream, they structure the deal to rule out IPL. The buyer finances the entire price from their own funds and external bank debt, without taking the target's cash. The sale contract prohibits the buyer from distributing the existing substance for five years, backs this obligation with a warranty and provides for an indemnity to the seller in the event of supplementary tax triggered by a distribution.

To objectivise the situation, the parties seek a tax ruling from the cantonal administration, confirming that the cash will be kept in the company and not distributed during the blocking period. As the distribution condition is not met, IPL is not triggered: the capital gain is fully exempt, on the 2.0 MCHF of cash as on the operating value. The difference in tax charge with Case 1 illustrates the value of anticipation: the same surplus cash, two structurings, two opposite tax outcomes.

A word from the CEO

“The tax-exempt capital gain is the finest privilege of selling a business in Switzerland, but it is also the most fragile. Indirect partial liquidation can requalify part of it without the seller having seen it coming.”

“IPL is not corrected after the fact: it is prepared before signing. Cleaning up the substance, structuring the financing, locking down the contract and, on borderline cases, obtaining a ruling: it is this upstream work that protects the seller's net price.”

“Our role is to value the company and structure the transaction by distinguishing operating assets from cash, in close coordination with the tax adviser. On taxation, we never substitute ourselves for the tax lawyer.”

Aristide Ruot, Ph.D., Founder and Chief Executive Officer, Hectelion SA

FAQ: the 10 essential questions on indirect partial liquidation

Introduction: what to keep in mind before the questions

IPL concentrates the subtleties of Swiss sale taxation into a single anti-abuse rule. The recurring questions from directors bear on its triggering, the notion of substance and the means of avoiding it. Here are the ten essential answers. They are educational and do not constitute tax advice.

Q1: What is indirect partial liquidation?

It is an anti-abuse rule (article 20a paragraph 1 letter a LIFD, article 7a LHID) that requalifies as taxable income part of the normally exempt capital gain, where a substance-rich company is sold and emptied of that substance within five years.

Q2: When is IPL triggered?

When five conditions are met: a participation of at least 20%, a transfer from private wealth to the buyer's business assets, non-operating substance existing at the sale, a distribution within five years, and the seller's participation who knows or should have known.

Q3: What is non-operating substance?

It is the reserves distributable under commercial law, present at the time of the sale, that are not required to continue the business: surplus cash, non-operating assets, investment property. It is assessed according to business-economics criteria.

Q4: What amount is taxed in the event of IPL?

The requalified amount is capped at the lowest of three items: the non-operating substance, the distributable reserves and the amount actually distributed. It is added to the seller's income, with partial taxation at 70% federally for a qualified participation.

Q5: How long does the risk last?

Five years from the sale. Any distribution of the existing substance during that period may trigger requalification. The risk therefore does not extinguish at closing.

Q6: What is the difference between IPL and transposition?

IPL (letter a) targets the sale to a third party followed by the extraction of the substance. Transposition (letter b) targets the sale to one's own company controlled by at least 50%, for a price above the nominal value increased by the capital contribution reserves.

Q7: How to avoid IPL?

By cleaning up the substance before the sale, having the buyer finance the price without taking the target's cash, inserting a five-year non-distribution clause, and obtaining a tax ruling on borderline cases.

Q8: Does a ruling really protect?

A ruling obtained in good faith binds the administration, provided the deal is carried out in accordance with what was submitted. It turns uncertainty into a position known in advance, but does not cover an arrangement constituting tax avoidance.

Q9: Does IPL concern family transfers?

Yes, notably where the transfer passes through the contribution of shares to a personal holding then a sale: the arrangement may cross IPL and transposition. A family transfer exposed to surplus cash must be structured with care.

Q10: Does IPL exist in France?

Not in this form, but France frames neighbouring logics, such as the contribution-sale under article 150-0 B ter. In both countries, tax law ensures that the form of the sale does not allow economic income to escape tax.

Estimate your company's value with Acontos, Hectelion's online simulator

Before structuring a sale exposed to IPL, you need to know your company's value and the weight of its surplus cash. Acontos offers a first online valuation, free and immediate. The tool brings three trades together in one, audit, due diligence and business valuation: it reads your accounts, normalises EBITDA, applies market multiples and distinguishes operating assets from cash, to produce a reasoned valuation range from the buyer's standpoint. The method draws on Anthropic's Claude Sonnet 5 artificial intelligence, framed by our valuers' methodology. Your documents are never stored and are never used for any training. To go further, discover Acontos, then structure your sale with our teams and your tax adviser.

Conclusion: IPL is prepared before signing, never after

Indirect partial liquidation is the reminder that, in Switzerland, the exemption of the capital gain is not an unconditional right but a framed privilege. Selling a cash-rich company without analysing IPL exposes the seller to seeing part of their gain requalified as taxable income, with supplementary tax and interest, often discovered years later. The five cumulative conditions, the notion of non-operating substance and the five-year period draw a perfectly identifiable, hence perfectly avoidable, risk. Cleaning up the substance, structuring the financing, locking down the contract and securing through a ruling: these defences turn a tax threat into a controlled deal. In 2026, as the Federal Supreme Court confirms its rigour and a reform is being prepared, IPL is not corrected after the fact, it is prepared before signing.

Article summary

Indirect partial liquidation (IPL), in article 20a paragraph 1 letter a LIFD and article 7a LHID, is an anti-abuse rule that requalifies as taxable income part of the normally exempt private capital gain, where a company is sold then emptied of its substance. It requires five cumulative conditions: a participation of at least 20%, a transfer from private wealth to the buyer's business assets, non-operating substance existing at the time of the sale, a distribution within five years, and the seller's participation who knows or should have known. The requalified amount, capped, is taxed through a supplementary tax procedure, with partial taxation at 70% federally for a qualified participation.

IPL is distinct from transposition (letter b), which targets the sale to one's own company controlled by at least 50% above the nominal value increased by the capital contribution reserves, and from direct partial liquidation (article 4a of the Withholding Tax Act), which targets the company buying back its own shares. It is prevented upstream: cleaning up the surplus cash before the sale, having the price financed without taking the target's substance, inserting a five-year non-distribution clause and, on borderline cases, obtaining a tax ruling. The Federal Supreme Court confirmed its rigour in rulings 9C_665/2022 and 9C_666/2022 of 14 December 2023.

The two cases illustrate the mechanics: a Geneva sale of 8.0 MCHF with surplus cash of 2.0 MCHF distributed within three years triggers IPL, with 1.4 MCHF added to the seller's income; a structured Vaud sale, where the cash stays in the company under a blocking clause confirmed by a ruling, preserves the full exemption. Hectelion values the company and structures the transaction, in coordination with the tax adviser, without ever substituting itself for the tax lawyer or providing tax advice.