I have an extra bonus income this year (around 42% marginal tax rate in Vaud). My strategy would be to do a voluntary 2nd pillar purchase (around 500k CHF), then move to EU, transfer the money to finpension and invest fully in stocks, wait at least for 3 years and then withdraw the money. The EU country that I will be moving to has a double tax avoidance treaty with Switzerland, through which I would pay only the EU country tax (which will be around 15%). So in 3 years we have around 27% savings (excluding the stock growth).
I am not sure if the voluntary purchases all go to the extra-mandatory part of the 2nd pillar? I am asking since from EU, you can withdraw only the extra-mandatory part of the 2nd pillar.
Are you sure you can? If I remember correctly, you can pay max. 20% of your salary into 2nd pillar 5 years after moving to Switzerland, could it be your situation?
If you already know you’ll be leaving I wouldn’t recommend doing this (especially with large sums), there are court cases of people doing exactly this.
(And a 500k buy-in might also only make sense if you have much larger income than 500k, due to tax progression)
From a tax perspective a buy-in could save you money, if you have that large a gap in your pension. But it is important that the buy-in is not a deliberate tax avoidance because if it is deemed to be such by the tax office, they will annul the tax deduction in arrears, and charge you for the difference in income/wealth taxes. From the tax office’s point of view, withdrawing after just 3 years could certainly look like tax avoidance. A very long term, on the other hand, probably would not.
The dominating factor for all things related to the second pillar is: Your pension benefits are meant to provide for you and your dependents in the event of old-age/invalidity/death. That is the only reason why pillar 2 contributions and assets are tax-preferred.
That is the criterion that the tax office will use. So a withdrawal near to retirement age or an early withdrawal for a home purchase would generally be seen as a correct way to use pension benefits. Withdrawing for immediate personal use would generally be seen as an incorrect way to use pension benefits.
If this is even enough? What if someone makes aggressive contributions prior to retirement and never withdraw it until a few years later at retirement age? Would they still argue that tax saving was a major consideration?
From what I see in the Neuchatel case, they did not even withdraw the money, just moved it to another canton, and this triggered a taxation. Any light on why they taxed them in the Neuchatel case?
It was their Canton of residency before leaving Switzerland.
The Canton didn’t consider the repurchase as tax deductible. The federal authorities confirmed the Canton’s decision.
A second pillar repurchase following by a transfer to a vested benefit account and a departure from Switzerland is not considered as tax deductible. The setup is not meant to improve your Swiss pension benefits.
The analysis and conclusion are well describe in the court decision
TBH part of the issue seems there that they did a buy-in two days before leaving Switzerland (and similar case law from section 7.4 mentions a week before leaving). Also the following per Google Translate (sorry, my French is bad):
Indeed, contrary to what the taxpayer claims, it was not so much the fact that the taxpayer in question had paid the entirety of her occupational pension assets into her personal savings account that was deemed decisive, but rather that at the time the buybacks of insurance years were made, the taxpayer knew that her employment relationship with her former employer was ending (as was that with her employer’s pension fund) and that she was permanently leaving Switzerland for I.________, as the FTA argues
So AFAICT intention is crucial and the moving/split was just more circumstantial evidence about intention. What the delay would need to be to make it unlikely you would need to fight this in court I dunno though, as sometimes they’ll have to accept life just happens, but these cases are really extreme.
Well, the thing is the also took the fact that the transfer to a VB located in a tax favourable jurisdiction as a sign there was an intention to withdraw it.
Also, splitting into 2 separate VBs was taken as planning to do a partial withdrawal.
I guess this is concerning for those who want to use Finpension for their better product offerings and those splitting who want to distribute across more than 1 VB institution to spread risk.
I think that part quotes a different case where the taxpayer transferred into savings, which I think would be fatal.
In the current case, the taxpayer transferred to VB and left the country. To me, this is still consistent with building up pension provisions for retirement. I could understand a challenge if she subsequently tried to withdraw the funds out of the VBs.
You’d think that that would be fatal but the court is saying in the quoted piece that the crucial part wasn’t the withdrawal but that they bought in a week before leaving and hence knew they were leaving (assuming translate hasn’t turned the meaning around?). Which is the part that is the same as the current case (where they bought in 2 days before leaving).
Hence if even withdrawal isn’t the decisive part it is hard to believe just the potential (circumstantial) preparation of withdrawal would be decisive.
I have to say, I struggle with the logic. Let’s start with the position that pension contributions should be deductible if it is for the purpose of providing for your retirement and not if mainly for the purpose of tax avoidance.
Then for me, leaving the country has no bearing on the purpose of retirement or even tax avoidance.
I wonder if it would have been different if the payments were made and the taxpayer didn’t leave the country but stayed in Switzerland? If feels like it might, but I don’t see why it should.
I guess my conclusion is then that you need to buy in the 2nd pillar at least 2 months before leavening, ideally not in the same tax year as leaving Switzerland and then keep the money in a default vested benefit account until the tax authorities loose their legal rights to tax you retroactively.
If you’re withdrawing it, it’s a lot less clear this is about retirement. (Maybe if you keep it in the pension system, either the swiss one or your new residence country, there’s a good argument).
FWIW the swiss system is fairly simple, if there’s no economic reason for doing something except for avoiding taxes, then it should be taxed as if you didn’t do the thing (you don’t need to handle it explicitly in the law).
FWIW, structuring to avoid detection doesn’t mean it’s necessarily legal. (You’d need to some explicit safe harbor conditions for that, I don’t think being in different tax year changes the outcome massively, since the intent is the same).
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