Board compensation - How does the BoD participate in the company's success?
Workshop by Ruth Bloch-Riemer and Véronique Risi at the ISIS) seminar on 13/14 September 2021 entitled "Employee compensation in tax and social security law".
Case 1: Fees paid by Meier AG to its board members A, B and C
Meier AG, based in Freienbach (SZ), founded in 2017, active in the IT and consulting industry, has five employees and a Board of Directors consisting of three persons: Ms Allemann, Ms Berger and Mr Christen.
Meier AG is still in the start-up phase. Each of the three BoD members still provides other services to Meier AG, and different questions arise for each of them due to the individual constellation:
1.1 Member of the Board of Directors Christen
Mr. Christen is Swiss, lives in Engelberg (OW) and settles his fees for the Board of Directors through his company Christen Consulting AG, based in Engelberg. He also advises Meier AG on organisational and team management.
How is his compensation to be recorded for tax, levy and pension fund purposes?
1.1.1 Variant 1
How would the tax and social security assessment change if Christen Consulting was not a public limited company but a sole proprietorship?
1.1.2 Variant 2
Mr. Christen and his consulting company (to be analysed as AG and as a sole proprietorship) are based or domiciled in Graz (Austria). What changes in the analysis?
1.1.3 Variant 3
Mr Christen is a resident of Engelberg, but Christen Consulting AG is based in Graz (without a permanent establishment in Switzerland).
1.1.4 Variant 4
Mr. Christen (domiciled in Engelberg) is a management employee at Multi-VR GmbH, based in Zurich. In addition to him, this company employs 8 other persons and provides various clients with board members and fiduciary services. How should Meier AG's fee for the board of directors be assessed under tax and social security law in this constellation?
1.2 Member of the Board of Directors Allemann
Ms Allemann is British with a B residence permit, lives in Horgen and also advises and represents Meier AG as a lawyer in various lawsuits.
How is your fee taxed by Meier AG and what social security contributions do you have to pay? How are any pension fund contributions levied? What is your advice to Meier AG?
1.3 Member of the Board of Directors Berger
Ms Berger is German, lives in Constance (Germany) and advises Meier AG on IT strategy in addition to her board mandate.
How is the compensation from Meier AG taxed and what social security contributions are due? How are any pension fund contributions levied? What is your advice to Meier AG?
1.3.1 Variant 1
Does anything change in the analysis and your recommendation to Meier AG if Ms Berger lives in the USA instead of Constance?
1.3.2 Variant 2
Does anything change in the analysis and your recommendation to Meier AG if Ms Berger lives in Moscow instead of Constance?
Case 2: Participation of members of the Board of Directors in the employee stock option plans of Meier AG with registered office in Zug
Meier AG operates a classic share plan.
Mrs. Allemann (A) residing in Zurich, Mrs. Berger (B) residing in Konstanz (Germany) and Mr. Christen (C), all members of the Board of Directors of Meier AG, each have the option to purchase 50 shares of Meier AG each year, each for CHF 10 (nominal value).
The formula value, calculated on an "EbITDA" multiple, is CHF 70 in 2017, CHF 80 in 2018, CHF 90 in 2019, CHF 100 in 2020, and 2021 also points upwards.
The shares are not blocked.
- How is the subscription of the shares treated for income taxes, social security contributions and for certification by Meier AG?
- How do you arrive at a meaningful valuation (formula/price outside, valuation report)?
- Are there special conditions for newly established companies?
2.2 Variant 1 - Blocked Shares
The shares are blocked for 3 years. What would be the effects of this? What happens if the blocking period lapses prematurely?
2.3 Variant 2 - Levy at market value
The directors are given the option to buy at market value. What does the taxation look like then? What does the certification by Meier AG look like?
Case 3: Owner's side / sale of shares in Meier AG
In 2016, the siblings Sara, Tanja and Andreas Steindl founded the company Steindl AG. The company is active in the field of solar energy. Mr Martin Ebel met the Steindl siblings at a trade fair in Hanover and was enthusiastic about their project from the very beginning.
When the siblings were looking for new investors in 2018, Mr. Ebel, among others, immediately agreed to invest in the company - on the condition that he be elected to the board of directors. The Steindl siblings agreed to this proposal. Mr Ebel bought the shares at fair value at the time of the investment.
At the same time, the Basel-based company Solarplus AG has also invested in Steindl AG. The management staff (as well as the founding shareholders) of Steindl AG were also given the opportunity to acquire new shares in Steindl AG and thus participate in the success of the company. The selling price of CHF 50 for the shares was based on a suitable formula (e.g. based on an EBIT multiple plus net asset value).
In 2021, the shareholders successfully sold Steindl AG to a private equity fund. The shareholders received CHF 500 per share. The formula value at the time of the sale was CHF 150.
A non-competition clause is provided for in the purchase contract.
- How are the siblings Sara, Tanja and Andreas Steindl taxed in
connection with the sale of the founding shares?
- How are the siblings Sara, Tanja and Andreas Steindl taxed in connection with the sale of the remaining shares (not founding shares)?
- How will the siblings Sara, Tanja and Andreas Steindl be taxed in connection with the sale of the remaining shares (not founding shares) if they are not sold until 2030?
- How will Mr. Ebel be taxed in connection with the sale of the shares in 2021?
- How are the shares of Steindl AG valued for wealth tax purposes?
- What are the tax consequences of the sale of Steindl AG with regard to the so-called
indirect partial liquidation?
- How should the competition clause be assessed?
Case 4: Taxation according to expenditure and VR activity in Switzerland
Mr Tom Miller is a British citizen. He and his wife Jenny have bought a property in Zug. They want to apply for taxation according to expenditure. Mr Miller wishes to be a director of True Hermes AG (domiciled in Zug).
May Mr. Miller serve on the board of True Hermes AG and at the same time claim taxation on the basis of expenses?
4.2 Variant 1
Is Mr Miller allowed to carry out an honorary administrative activity in Switzerland at True Hermes AG?
4.3 Variant 2
May Mr Miller be a director of his own company, the purpose of which is limited to asset management or to safeguard privately invested capital?
4.4 Variant 3
May Mr Miller serve on the board of directors of Louis Chanel SA, based in France?