Provision of the entrepreneur in the course of succession (social security and tax law optimization potential and limits)
Workshop on the occasion of the ISIS) seminar on 14-15 September 2020 entitled "Tax-optimised corporate succession - opportunities and risks of fundamentally different succession options".
Case 1 - Introduction
The latest developments from a legislative point of view in the area of pension provision with a focus on "taxes" will be presented in a short paper.
It also discusses the fundamental considerations that the employer must make with regard to occupational benefits within the framework of his or her subscription strategy.
2nd case 2 - Employer contribution reserves
The simple partnership ("EG") X-Consulting has organised its second pillar via a collective foundation as a wrapping pension scheme. The employer contributions are made up as follows:
To what extent may the EC X-Consulting establish employer contribution reserves? When are employer contribution reserves to be paid?
For economic reasons, EG X-Consulting is forced to reduce its workforce. What influence does the reduction of the workforce have on the existing employer contribution reserves?
For liquidity reasons, the shareholders of EG X-Consulting decided in April 2020, based on the "COVID-19 Regulation on Occupational Pensions", to pay the employee contributions from the ordinary employer contribution reserve. What are the consequences of this approach?
How would the questions be answered if EG X-Consulting had the legal form of a GmbH?
3rd case 3 - pillar 3a
B&Co was founded as a general partnership and entered in the commercial register in accordance with Art. 554 ff. of the Swiss Code of Obligations. The partners are the married couple X and Y.
According to the conversion plan of 26 June 2014 and the balance sheet as of 31 December 2013 with assets of CHF 570,000 and liabilities (outside capital) of CHF 400,000, the general partnership was converted into a joint stock company pursuant to Art. 620 et seq. OR and entered in the commercial register under the name Z-AG on 30 June 2014.
On 30 June 2014, X and Y closed the settlement account for self-employed persons with the compensation office. On 1 July 2014, X and Y joined a collective foundation.
In their 2014 tax return, X and Y only declared income from employment. They claimed deductions of CHF 20,000 (X) and CHF 12,000 (Y) for the payments into pillar 3a. The cantonal tax office ZH only allowed the deduction for Pillar 3a of CHF 6,739 each.
How are the contributions to the pillar 3a basically calculated?
How are the contributions to the pillar 3a of a self-employed person calculated in the year of a retroactive conversion of a partnership into a corporation?
Question 3: Pillar 3a supplement
Does the time of payment of contributions play a role in the assessment of the facts?
Case 4 - Purchasing
A was resident in ZH in the 2015 tax period. As a dependent employee, he made a purchase of CHF 150,000 into his employer's pension scheme in 2015.
Since the purchase exceeded the taxable income, the overall result was a negative income and a partial amount of CHF 59,000 could not be deducted.
In 2016, he moved his place of residence to the canton of AG. In his tax return for the 2016 tax period, he deducted the previously non-tax-effective partial amount of CHF 59,000.
How is the situation to be assessed?
5 Case 5 - Principles of occupational pension schemes
The architecture company Designhaus AG was founded by the architects A and B. The company has a total of 6 employees:
- A (52, AHV salary CHF 300,000) and B (47, AHV salary CHF 250,000), participating shareholders
- C (32, AHV salary CHF 101,000) and D (28, AHV salary CHF 95,000), draftsmen
- S (29, AHV salary CHF 80,000), Secretary
- L (19, AHV salary 18,000), apprentice
You plan to make occupational pension provision with the Collective Foundation Z as follows:
How is this situation to be assessed from a pension and tax law perspective?
6th case 6 - Pillar 3a lump-sum payment with deferred purchase
A (born 1952) and B are resident in the canton of SO. A ran an agricultural business, which he sold in 2013. He was subsequently gainfully employed.
Following the sale of his farming business, A made various purchases into the occupational pension scheme, including a purchase of CHF 93,000 dated 26 October 2016.
In the same year, A received two lump-sum benefits from two different insurance policies under the tied personal pension plan (pillar 3a) totalling CHF 93,693 (CHF 57,293 on 22 November 2016 and CHF 36,398 on 1 December 2016).
In their tax return for the 2016 tax year, Spouses A declared lump-sum pension benefits of CHF 93,693 and claimed a deduction of CHF 93,000 for the purchase of 2nd pillar benefits.
How is the situation to be assessed?
Case 7 - Vested benefits - Determination of the assessment basis
On January 24, 2018, a vested benefits foundation paid A a capital benefit of CHF 544,000 as a result of survival. This amount was made up as follows:
On 18 March 2018, the GR tax authorities issued the final assessment rulings regarding the special tax on lump-sum pension benefits for cantonal and communal taxes as well as for direct federal tax. The taxable benefit was set at CHF 544,000.
A lodged an objection against the assessment rulings, claiming that only the original capital and the income generated therefrom, i.e. CHF 401,000 (CHF 352,000 [deposit]+ CHF 49,000 [income] = CHF 401,000), should be subject to taxation. The remainder was exclusively capital gains, which were tax-exempt in the area of free investments.
How is the situation to be assessed?
8th case 8 - Art. 17(2) DBG - Lump-sum employer's contribution with pension character
X had been a member of the management of B AG since 2000. In her function she was also a member of the management of the following two other companies of the same group:
- C AG (purpose: production and distribution of men's, women's and children's clothing), and
- D AG (Purpose: Internet distribution of goods of all kinds).
From December 2000 to February 2015, X was responsible for personnel, legal and administrative matters. In 2014, her salary was CHF 205,000.
As a result of a reorganisation, X was terminated as a member of the management of the BCD Group at the end of February 2015. She received compensation of CHF 237,000 on 28 February 2015.
Within the group, she was offered a new position. From 1 March 2015, she worked for the future Foundation E, where she managed "humanitarian projects with sustainable development in the field of childhood, education, training, environment and improvement of general living conditions". Her salary from then on was CHF 95,000.
In 2017 it was again integrated into the BCD Group. Her employment contract finally ended on April 30, 2019.
How is the severance payment of CHF 237,000 taxed?
9th case 9 - Article 79b(3) BVG - WEF advance withdrawal
Spouses A (born 1955) and B. (born 1958) have tax residence in the canton of AG.
In 2008, the husband made a purchase into the occupational benefit scheme by transferring CHF 19,000 to the BVG collective foundation to which C-Consulting AG is affiliated. The taxpayer is the only member of the board of directors of this company.
In February 2010, he withdrew the amount of CHF 176,000 from the same BVG collective foundation. The WEF advance withdrawal served to finance an unexpected increase in the costs of the construction of the marital home, which was started in autumn 2009.
How is the situation to be assessed or does a WEF advance withdrawal qualify for Art. 79b para. 3 BVG?
10th case 10 - Art. 79b para. 3 BVG - Reversal
Mr B, born in 1956, made a purchase into Pension Fund Z in the amount of CHF 250,000 in 2016. The purchase was fully deductible by the tax office of the Canton of Zurich.
On 1 December 2018, B drew a vested benefit credit in the amount of CHF 250,793 in capital form. Thereupon, the tax authority of the Canton of ZH corrected the purchase in the simplified after-tax procedure and increased the taxable income by CHF 250,000. It justified this with reference to the retention period pursuant to Art. 79b para. 3 BVG.
The taxpayer objected to the order and demanded that he be allowed to reverse the capital withdrawal made on 1 December 2018. He had not been aware that he had violated the blocking period by receiving a capital payment. He did not necessarily have to receive this benefit in 2018, but could still do so at a later date.
How do you assess this case?
11th case 11 - Pillar 3a - maturity of the benefit
A and B are married and live in unseparated marriage in Nyon VD. A, who was born in 1946, continued to work after reaching AHV retirement age until the age of 70.
During his professional activity, A has built up a pillar 3a with various banking foundations. He withdrew his Pillar 3a retirement assets as follows:
The capital payments of the years 2013, 2014 and 2015 were each taxed separately at the pension tariff in the year of payment. After A received another lump-sum payment from Pillar 3a in 2016, the assessments for 2014 and 2015 were revised. In the course of this revision, the responsible tax authority made a new assessment for the 2016 tax year, in which it added up the lump-sum benefits for the years 2014, 2015 and 2016 and taxed them at the retirement savings tariff.
A objected to this. The objection was rejected. The tax authority explained that all pillar 3a lump-sum benefits paid out after reaching AHV retirement age are taxed together at the time of the cessation of employment.
A lodged an appeal with the cantonal court VD.
When can retirement benefits be drawn from pillar 3a?
When do retirement benefits from pillar 3a become due?
When are retirement benefits from pillar 3a taxed?
Case 12 - Cross-border contributions
D began her professional career in 1994 in Germany, where she has been a member of the Versorgungswerk der Ärztekammer U. since March 1994. In 1995, she took up her first position in Switzerland and has been a member of a pension fund in Switzerland since November 1995. In the 2014 tax year, D worked as a physician at the Cantonal Hospital V. and was affiliated to the occupational pension scheme of the Cantonal Hospital. Since moving to Switzerland, D has voluntarily continued her membership of the pension fund of the Medical Association U.
In 2014, in addition to contributions to the AHV and the Swiss 2nd pillar, it paid a contribution of CHF 4,585 to the pension fund in Germany.
What practical requirements must be met in order for contributions to foreign pension schemes or pension plans to be recognized for tax purposes in Switzerland when income from employment is taxed?
Are the contributions to the pension scheme of the Medical Chamber U. tax deductible?