Debt push down

The taxpayer, an acquisition SPV, receives a loan to acquire the entire share capital of a property company. In the weeks following this acquisition, the taxpayer merges with its target. The taxpayer fails to meet its tax obligations and is assessed by default. Once. Twice. The taxpayer files a tax return for its third financial year. The tax authorities ask questions to which the taxpayer only partially responds. Consequently, a third default assessment (TO) is issued, disallowing the deductibility of a large portion of the passive interest. The taxpayer appeals.

Three years after the claim, the tax authority opens proceedings for tax recall and evasion in connection with the first TO, then two years later for the following two TOs. The tax authority does not admit the deductibility of interest expenses.

Federal judges found that the taxpayer had acquired the target through a leveraged buy-out. The merger had led to a debt push down.

Are the interest expenses relating to a loan taken out to acquire the target company, which then led to a debt push-down through a merger, tax-deductible from profits?

Whilst some of the legal doctrine cited by the federal judges recognises the deductibility of borrowing costs—on the grounds that they were deductible for the acquisition SPV prior to the merger—the federal judges uphold the position of the cantonal judges, namely «that the portion of the loan which was not used for the property and which enabled the new shareholders to acquire the appellant (i.e. 76.36% of the total loan amount) was not specifically linked to investments in the property and that this part of the loan – according to the cantonal findings, which are not contested at federal level – did not provide liquidity useful to the appellant’s business.» (para. 10.1)

The ruling is in French. This is a Genevan case.

TF, judgment 9C_606/2025, of 24 February 2026