Dividends to Employee-Controlled Holding May Be Subject to Social Security Contribution

In its decision of 25 June 2026 (9C_532/2025, in German), the Federal Supreme Court ruled that excessive dividends routed through an employee-controlled holding structure may be recharacterized as AHV/AVS contributable salary when the arrangement is primarily used to avoid social security contributions and the salary paid is clearly disproportionate to the work performed.

Case

An operating company distributed substantial dividends to its sole shareholder, a holding company, whose sole owner also worked for the operating company. Following a social security audit covering 2021 and 2022, the authorities noted that the individual performing services for the operating company received a comparatively low salary, while significant amounts were distributed to the holding company. The holding had limited independent business activity and derived most of its income from its participation in the operating company. Based on these findings, additional social security contributions were assessed, which the company subsequently challenged. The case was escalated to the Federal Supreme Court.

Court Decision

The Federal Supreme Court confirmed that the established principles for recharacterizing dividends as social security contributable employment income may also apply where distributions are made indirectly through an intermediary holding company. The Court held that the legal personality of the holding may be disregarded for social security purposes where the structure lacks genuine economic substance and is primarily used to achieve a contribution-related advantage.

The Court found that the holding company lacked meaningful independent economic activity and primarily served to channel dividend income from the operating company to its beneficial owner. It further confirmed that the remuneration paid was disproportionately low in light of the services performed, with the salary level itself indicating social security-driven remuneration planning. Against this backdrop, and given the clear imbalance between salary and dividend distributions, the Court upheld the reclassification of part of the dividends as AHV/AVS contributable salary.

Deloitte’s View

The decision confirms that the Swiss social security authorities and courts are prepared to look beyond formal corporate structures where a clear mismatch exists between salary and dividend distributions. While holding structures remain legitimate, taxpayers should ensure that shareholder-employees receive remuneration that reflects their actual role and responsibilities. Interposing a holding company will not, by itself, prevent a recharacterization of dividend income for AHV/AVS purposes where the overall arrangement results in a clear imbalance between salary and dividend distributions.

The court refers to the established principles for recharacterizing dividends as social security contributable employment income. As a reminder the authorities follow a two-step approach, in line with the Federal Supreme Court’s decision (e.g., BGE 134 V 297, in German): In a first step, it must be examined whether the paid salary is “at arm’s length” for the respective function and the industry. If not, in a second step, the dividend is reclassified only to the extent that it exceeds 10% of the tax value of the company's shares.

Authors

• Thomas Hug – Partner, National Tax Office
  
• Vanessa Prins  – Manager, Global Employer Services
• Daniela Martinis-Arth – Manager, Tax & Legal