Pensions and insurance - from the employer's and employee's perspective (2023)
Workshop on the topics of pension plans and insurance from the employer and employee perspective by Andrea Opel and Andrea Hildebrand on the occasion of the ISIS seminar "Corporate Tax Law 2023" on June 19/20, 2023.
Case 1: Change of job according to Art. 24 lit. c DBG
A, resident in the Canton of Zurich, is on the one hand employed and has been employed for over 35 years by X. AG for over 35 years. For this employment relationship, he is affiliated with the X. PK of the 2nd pillar. On the other hand, A has been self-employed for a few years and is affiliated with the Y. PF for this purpose.
On April 2, 2022, he will take early retirement at the age of 58 and will no longer be employed. He draws his retirement capital from the X. PF of CHF 260,000 as a lump sum on May 1, 2022.
After giving up employment, however, A continues to be self-employed and expands this activity accordingly.
- How is the capital benefit taxed (federal/cantonal)?
- On December 28, 2022, A makes a purchase into the Y. PF (S purchase) in the amount of CHF 250,000. Is the purchase into the Y. PF allowed for deduction?
- A's early retirement according to the basic facts was not entirely voluntary. A would like to continue working. Because he is unable to find a suitable job quickly, he registers with the unemployment insurance fund. How do you now assess the deductibility of A's purchase of CHF 250,000 on December 28, 2022 (question 2) into the Y. PK?
- A intends to continue working as a self-employed person until the age of 70. Can he still make purchases into the Y. PF after the age of 65? What happens if - assuming he reaches the age of 70 - he wants to claim privileged liquidation taxation under Art. 37b DBG when he ceases self-employment? To what extent is a fictitious purchase permitted?
Case 2: Blocking period under Art. 79b (3) BVG
A, born in 1962, was affiliated to the pension fund of the Swiss Confederation (PUBLICA). He bought into the pension fund on several occasions, most recently on August 30, 2019 with an amount of CHF 100,000. He deducted this purchase for tax purposes.
Based on a transitional arrangement, he was granted the option of taking early retirement and at the same time contributing to the financing of a bridging pension by making a purchase. On May 29, 2022, the then 60-year-old taxpayer made a one-time payment of CHF 60,000 to the federal pension fund from his own funds. The employer made a contribution in the same amount directly to the pension fund. A took early retirement as of July 1, 2022. From July 1, 2022, he received a bridging pension of CHF 2,000 per month.
A wished to have his entire pension assets with PUBLICA paid out at the time of early retirement. On July 3, 2022 (variant: September 3, 2022), he was able to receive a lump-sum payment of CHF 1,500,000 under this title; his total pension assets amounted to CHF 2,000,000, and he received the remaining CHF 500,000 in the form of a pension (in addition to the bridging pension).
The competent cantonal tax office subjected the lump-sum pension benefit - for the purposes of direct federal tax and state and municipal taxes - to a special assessment in assessment rulings dated October 26, 2022. This assessment became legally effective.
A made a deduction of CHF 60,000 in his tax return for the tax period 2022 for the purchase of May 29, 2022, which was denied to him by the assessment authority.
- How will the purchase of CHF 100,000 on August 30, 2019 and the subsequent lump-sum withdrawal on July 3, 2022 be treated for pension and tax purposes?
- What is the situation with respect to the August 30, 2019 purchase if the lump sum benefit is not paid until September 3, 2022?
- How is the employee's purchase of May 29, 2022 in the amount of CHF 60,000 treated under pension and tax law? Was the deduction rightly denied?
- How is the employer's purchase of CHF 60,000 also treated?
- How is the bridging pension that A has been receiving since July 1, 2022 taxed?
Case 3: Severance payment
A, resident in the Canton of Zurich, was employed by B. AG. The employment relationship was terminated by "termination agreement" dated June 19, 2022 "with a view to early retirement by mutual consent". The contract further provided that B. AG would pay A a severance payment of CHF 2 million gross. The severance payment was listed in the salary statement for 2022 under the heading "irregular benefits" and marked "profit participation".
- A claims that this severance payment is taxable as a lump-sum benefit at the preferential pension rate under Art. 38 DBG. Rightly?
- If the severance payment cannot be taxed as a lump-sum pension benefit, would it be possible to tax it at the pension rate under Art. 37 DBG (lump-sum settlement for recurring benefits)?
- A moves to the Canton of Thurgau after the termination of the employment contract and after payment of the severance pay (but before the end of 2022). Where is the severance payment taxable? Where would the severance payment have been taxable if it had been of a pension nature?
- A decides to stop working after the termination of his employment contract and to retire in Mexico. He deregisters in Switzerland and establishes his new tax residency in Mexico. After his departure to Mexico, A (58 years old) then receives from X. AG in the amount of CHF 1 million "to bridge the time until retirement". This becomes due after moving abroad. Comment on the tax consequences at (a) national and (b) international level.
- Due to a conflict of qualification of the severance payment of the two countries (Switzerland/Mexico), there is an international double taxation. The ordinary domestic appeal procedure has been exhausted due to the legal force of all decisions. How do you advise A to proceed in order to avoid double taxation?
Case 4: Settlement of small wages/pillar 3a
A, resident in the canton of Bern, works mainly as a cleaner. In 2020, she earned income from employment in the amount of CHF 14,000. The amount included, on the one hand, salary payments of CHF 4,000 taxable under the ordinary assessment procedure and, on the other hand, income totaling CHF 10,000 from various sideline activities in the field of room care, which were taxed under the simplified accounting procedure pursuant to the Federal Act on Measures to Combat Clandestine Employment of June 17, 2005. A declared the amount of CHF 10,000 in the 2020 tax return under the heading "non-taxable income".
A was not affiliated with any occupational pension institution (2nd pillar). She made a contribution of CHF 1,100 to her Pillar 3a in 2020 and made a corresponding deduction in her tax return.
The tax administration of the Canton of Bern added CHF 300 of the deducted CHF 1,100 to the taxable income for cantonal and communal taxes as well as for the direct federal tax and thus only recognized the deduction to the extent of CHF 800 (= 20% of CHF 4,000).
- What is meant by simplified settlement under the Federal Act on Undeclared Work (BGSA) and under what conditions is it possible?
- How must the employer deal with any Pillar 3a contributions when accounting under the simplified procedure? And is the assessment of the tax administration of the Canton of Bern correct, according to which income that is taxed under the simplified accounting procedure is not taken into account when determining the Pillar 3a deduction?
- Suppose A debited the CHF 1,100 to her postal account on December 29, 2020 (the day of the debit) and the amount was credited to the pension plan on January 3, 2021. Is a deduction possible in the 2020 tax return?
- Is it possible to claim a missed payment of Pillar 3a contributions ("3a gap") for tax purposes in retrospect?
- Is it possible to reclaim excess Pillar 3a contributions paid in retrospectively?
Case 5: International relationship
Situation 1 (inflow from the USA)
A, U.S. citizen, age 42, is employed by a U.S. company active in the field of biotechnology. A has made contributions to a Traditional 401k plan in the USA. His pension assets at the end of 2022 amount to USD 200,000. A and his employer agree that A should work in Switzerland for five years from January 1, 2023. During this time, he will continue to receive his salary from the US employer. As a possibility, it is envisaged that A may end up working in Switzerland for longer than these five years. This is to depend in particular on how well A and his family can integrate in Switzerland.
The 401k plan is a model of private pension provision in the USA. It owes its name to the classification in Section 401 k of the US Internal Revenue Code. The 401k plan allows limited contributions (currently a maximum of USD 22,500 per year for employees under 50). The employer's financial participation is on a voluntary basis. Contributions made by the employee as well as by the employer are tax deductible and are only taxed upon withdrawal. Furthermore, contributions to the pension plan generally remain locked in until the insured reaches the age of 59½. Any possible prior withdrawals are penalized with a "tax penalty". The pension assets can be drawn in various ways: in the form of a pension, as a one-off lump-sum payment or in the form of staggered lump-sum payments of a freely selectable amount.
- Which social security system is A subject to during his five-year stay in Switzerland?
- Does this change if he stays in Switzerland for more than five years and is then employed by the Swiss branch of the US company?
- A contributes USD 20,000 per year to the US pension plan (his gross salary is USD 180,000). Is this annual contribution deductible? Are his pension assets subject to wealth tax in Switzerland?
- Will this change once the five years have passed?
- How are the benefits from the 401k pension plan taxed if A is still resident in Switzerland when he reaches AHV retirement age (65)? How are the benefits taxed if A withdraws his assets in lump-sum form on a staggered basis over several years?
Situation 2 (inflow from Germany)
B, a German citizen, began her professional career in Germany, where she had been a member of the pension scheme of the German Medical Association since March 1, 2004. On November 1, 2005, she took up her first position in Switzerland and joined a Swiss pension scheme. In 2022, B worked as a physician at the Cantonal Hospital Baselland and was affiliated with the occupational pension plan of the Cantonal Hospital. In addition, B voluntarily continued her membership in the pension scheme since moving to Switzerland.
According to Section 7, Paragraph 1, Sentence 2 of the German Social Security Code (SGB), Germans who have their habitual residence abroad may take out voluntary insurance. This also includes a voluntarily continued membership in the pension scheme of the German Medical Association. The pension statute states, among other things, that voluntary members are not free to choose the amount of the contributions they pay, and that voluntary members are not allowed to buy into pension gaps. Furthermore, once contributions have been made, they cannot be reclaimed; during membership, there is only an expectation of benefits. Finally, the plan is not a pure savings plan, but rather covers the risks of disability and death.
Cf. BGer, 28.6.2019, 2C_461/2018.
- Which social security system is B subject to since she has been working in Switzerland?
- B claims a contribution of EUR 4,000 to the pension fund as a deduction in 2022. Is the deduction recognized for tax purposes? How is her existing credit balance in the pension fund treated for property tax purposes?