Compensation of members of the Board of Directors and Managing Directors

Case 1: Executive Committee member with function in Switzerland

Facts

Ralf Schubert, German citizen, lives with his family in Tübingen (D) and is a member of the Executive Board of the Güberth Group. He is in an employment relationship with a German group company, Güberth GmbH & Co. KG with headquarters in Tübingen. Since 1 July 2016, he has also been a member of the Board of Directors and CEO of Güberth Schweiz AG, based in Frauenfeld (TG). In 2016, he received a compensation of CHF 140,000 for his work as CEO of Güberth Schweiz AG; the fee for the Board of Directors amounted to CHF 20,000 according to his employment contract.

To carry out his 50% workload for Güberth Schweiz AG, he is physically present in Switzerland on approximately one to two days per week throughout the year. The remaining work, for which his presence is not required, is carried out from Tübingen. In 2016, he regularly drove back to Tübingen after the end of work and only stayed overnight in Switzerland for 10 days.

Facts variant 1

Mr. Schubert needs about 2 hours for the return journey to Tübingen, whereby about 160 km have to be covered. For this reason, Mr. Schubert stays overnight in a rented 1.5 room apartment in Frauenfeld during those weeks in which he works in Switzerland for at least two consecutive days. In 2016 he had 35 overnight stays.

Situation variant 2

Mr. and Mrs. Schubert registered in Kreuzlingen as of July 1, 2016, where they also bought a condominium. The wife commutes between Kreuzlingen and Tübingen, while the children stay in Tübingen, where they are repented by their grandparents in the absence of their parents. Mr. Schubert's worldwide income in 2016 including the income from his employment with Güberth GmbH & Co. KG will be taxed in full in the subsequent ordinary tax assessment procedure due to the incorrect assumption that Mr. and Mrs. Schubert are resident in Switzerland. After this tax assessment has become legally binding, the German tax authorities qualify Mr. and Mrs. Schubert as still resident in Germany, as his center of life or his residence is still in Tübingen.

Questions about the basic facts

• Is Mr. Schubert subject to taxation in Switzerland and if so, to what extent?
• Are social security contributions to be paid on the income earned in Switzerland?

Questions on the facts of the case 1

• Will the tax assessment change if Mr Schubert does not return to Germany for a total of 35 days after the end of his employment in 2016?
• The German tax authorities are of the opinion that Mr. Schubert cannot legally prove that he stayed overnight in Switzerland for 35 days after the end of his work. The income already recorded in Switzerland with the withholding tax is therefore also taxed in Germany. What can Mr. Schubert do so that his income is not taxed twice?

Questions on the facts of the case 2

• What can Mr Schubert do to eliminate the double taxation that has occurred?
• Due to a restructuring of Güberth Schweiz AG in 2017, Mr. Schubert will have to stay in Switzerland for a longer period of time, which is why his wife and children have also moved to Switzerland. The house in Germany will be retained and under German unilateral law, Mr. Schubert will continue to be subject to unlimited tax liability in Germany. To what extent is double taxation avoided by the DBA-D?

Case 2: Bank with permanent establishment in the United Arab Emirates

Facts

Fuad Bhuptani is a citizen of the United Arab Emirates and lives together with his wife and his two children who are not yet of school age in a large condominium in Oberägeri (ZG). Mr. Bhuptani is CEO of CG Petroleum Investment (Switzerland) AG, based in Zug, in which he holds a 40% stake and which employs around 45 people in Switzerland. Mr. Bhuptani has an apartment in a high-rise building in Dubai, which is comparable in size and furnishings to the premises in Oberägeri. Many of the family members also live in Switzerland today, although the parents-in-law and some friends still live in Dubai. Therefore his wife and children live in Dubai for about 2 months a year.

CG Petroleum Investment (Switzerland) AG has its headquarters in Zug and a branch office in Dubai. Mr. Bhuptani spends about 8 months in Switzerland and about 4 months in the United Arab Emirates during the year.

In 2016, he earned an income of CHF 1.1 million from his work at CG Petroleum Investment (Switzerland) AG.

Facts variant

Mr. Bhuptani's wife does not feel at home in Switzerland and now stays permanently in Dubai, where the two children also go to school. Due to this, Mr. Bhuptani's stays in Switzerland are also reduced, so that he only spends about 4 months in Switzerland and about 8 months in Dubai.

Questions about the basic facts

• Is Mr. Bhuptani subject to taxation in Switzerland and if so, to what extent?
• Does the tax assessment change if Mr Bhuptani's salary, in so far as he works for the permanent establishment in Dubai, is borne by the permanent establishment?
• On what income are social security contributions payable in Switzerland if part of the salary is paid by the permanent establishment in Dubai?

Questions on the facts of the case

• When can a transfer of residence abroad be assumed from a tax law perspective?
• The competent tax administration assumes that Mr. Bhuptani is still resident in Switzerland and that he is subject to unlimited tax liability here. This is particularly so in view of the fact that his income is not taxed in Dubai. Is there an inadmissible international double taxation?
• On what income are Swiss social security contributions payable if part of the salary is paid by the permanent establishment in Dubai?

Case 3: Independent consultant becomes a member of the board of directors in Switzerland

Facts

Jürgen Koch was for years in the management of various medium-sized companies in Germany. Since leaving the group management of an industrial company in 2012, he has been an independent management consultant within the framework of a partnership under civil law (GbR) with office premises in Sindelfingen. Last year, he generated income of around EUR 450,000 from this consulting activity, including income of EUR 50,000 from a supervisory board mandate he holds with a German company. At the beginning of 2015, Mr Koch will be elected to the Board of Directors of Plantotech International AG, an industrial group based in Kreuzlingen (TG), for which he will be paid a board compensation of CHF 85,000. Plantotech International AG has a subsidiary in Germany, Plantotech GmbH, based in Nuremberg.

Facts variant 1

For years he has been advising an industrial company based in Linz (Austria). The consulting fees he charges each year amount to approximately EUR 60'000. He could convert his consulting contract into an employment contract with a workload of 20%.

Situation variant 2

Mr. Koch will receive CHF 15,000 in 2015 from his activity as a member of the Board of Directors and will also receive a contract of employment with Plantotech GmbH, based in Nuremberg, with a workload of 30%. For this he will receive a remuneration of around EUR 66,000 (= CHF 70,000).

Questions about the basic facts

• Assess the social security situation of Mr Koch. Does Mr Koch's membership of the Board of Directors of Plantotech International AG make him liable to pay contributions, and if so, to what extent?
• Would anything change in the previous assessment if Mr Koch were to invoice his fee as a director through his civil-law partnership?

Questions on the facts of the case 1

• Would anything change in the assessment under social security law if Mr Koch were to conclude an employment contract with the industrial company in Linz?

Questions on the facts of the case 2

• Is Mr Koch subject to Swiss social security obligations?
• On the occasion of an audit at Plantotech GmbH in 2017, the German tax authorities came to the conclusion that the wage costs charged to the company were economically attributable to Plantotech International AG. Therefore the expense of EUR 66,000 is not allowed to be deducted. Plantotech International AG has already been definitively assessed for the tax period 2015. What procedural aspects need to be considered from a Swiss perspective?