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Stefan Oesterhelt

Andrea Hildebrand

Taxation of lump-sum benefits upon termination of employment and from pension plans (Pillars 2 and 3a)

Workshop on the occasion of the ISIS) seminar of 22 November 2018 entitled "Taxation of Capital Payments

The corresponding case solutions can be purchased for CHF
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The case solutions and other documents can be obtained free of charge in the shop.

Case 1: Repayment of severance pay

In 2017, the CEO of a major pharmaceutical company received a severance payment of CHF 10 million. In 2018, it becomes known that the pharmaceutical company made bribery payments during his term of office and therefore has to pay a fine of CHF 300 million in the USA. Now the pharmaceutical company is demanding the severance payment back from the former CEO. The latter finally pays back the severance payment. The Settlement Agreement states that this is done "voluntarily and without recognition of any legal obligation".

Case 2: Prohibition of competition

Mr. X has built up a service company (AG), which he is now selling to an independent third party for CHF 20 million. The share purchase agreement contains a non-competition clause with a duration of 3 years. No separate compensation for the non-competition clause is envisaged. (Variant: the SPA provides for compensation of CHF 50,000 for the non-competition clause).

Case 3: Taxation of lump-sum benefits from pension plans

Mr. X, who lives in the city of Zurich and is a partner in a Zurich law firm (legal form AG), is retiring from the partnership at 65. The pension fund confirms to him that he can draw either a pension of CHF 500,000 per year or a one-off lump-sum payment of CHF 5 million. In the future, Mr. X will continue to work for the law firm as a consultant.

Mr. X. comes to you and asks you for (tax) advice. Since he is not (no longer) bound to Zurich, Mr. X. does not rule out a change of canton.

Option 1: Moving abroad

Mr X is considering the tax consequences of moving abroad when he retires. It shall consider the following options:

  • France
  • London (where he is taxed as a resident but not domiciled person)
  • Germany.

Option 2: Partial retirement

Mr. X reduces his workload somewhat at the age of 60. Whereas he previously earned an average of around CHF 1 million, he now earns around CHF 600,000 p.a. As a consultant (i.e. from the age of 65) he finally earns around CHF 100,000.

Is there the possibility of a staggered payment of a lump-sum pension benefit?

Case 4: Severance pay in the event of early retirement


Mr. X. is 55 years old and worked for the ABC Group in Zurich for around 20 years, most recently as a member of the Executive Board. Mr. X. lives with his family on Susenbergstrasse in Zurich. As part of the recent restructuring, he loses his job but receives a severance payment of CHF 5 million, of which the employer pays CHF 3 million into Mr.'s pension fund. X. pays in.

Most recently, Mr. X. had regularly earned more than CHF 3 million per year. Mr. X's salary insured under Pillar 2 amounts to CHF 835,200. Early termination of the employment contract results in a pension gap of CHF 3 million. At that time, there was already a purchasing requirement of CHF 1 million.


  • Question 1: How is the severance payment of CHF 5 million taxed?
  • Question 2: How would the severance pay be taxed if the employer paid the entire amount directly to Mr X. (and not to his pension fund)
  • Question 3: Does it make any difference whether Mr X. continues to perform any of the following activities after his employment with the ABC Group:
    (i) Member of the board of directors of another industrial group;
    (ii) Consulting mandate with a private equity firm;
    (iii) Partner in a strategy consulting firm?
  • Question 4: How would the case be assessed if Mr. X. was only 54 years old when the employment relationship ended?
  • Question 5: How would the case be assessed if the centre of Mr X's life was in London and he had only spent a week in Zurich?
  • Question 6: How would the case be if Mr. X. worked three days a week in Zurich and two more days a week in London?
  • Question 7: How would the case be assessed if Mr X. had only been in Switzerland for two years and, as a UK citizen, did not have a C residence permit?

Variant: reactivation of the pensioner

Mr. X. becomes CEO of a competitor three years after the end of his employment and receives a salary of CHF 2 million per year in return.

Does this have an impact on the taxation of his former employer's severance pay?

Does this have an impact on the taxation of the lump-sum benefit he received when he left his pension scheme?

Can Mr. X. buy into the pension fund again?


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