Favourable Court Decision on Pension Fund Contribution with Subsequent Withdrawal

In its decision of 30 January 2025 (9C_206/2024, in German), the Swiss Federal Supreme Court addressed whether purchases of additional pension fund benefits up until the year of retirement, aimed at filling gaps resulting from a divorce, constituted tax avoidance when followed by a subsequent timely capital withdrawal. The Court confirmed, based on a comprehensive assessment, that there was no tax avoidance and that the tax deductibility was valid.

In principle, purchases of additional retirement benefits can be deducted from the taxable income in Switzerland. However, to prevent an insured person from making a purchase for tax reasons only and then withdrawing the amount paid in shortly afterwards, the law stipulates in art. 79 para. 3 BVG (German/French) a three-year blocking period: The capital contributed by the purchase and the interest accruing on it may only be paid out three years after the purchase. If a withdrawal is made during the blocking period, the previous purchase is classified as abusive under tax law and thus as tax avoidance. In this case, the purchase cannot be deducted from taxable income.
 

Fact Pattern
 

Following his divorce in 2015, an individual made purchases of additional retirement benefits between 2016 and 2019 on a regular basis in a total amount of CHF 828,000. The last purchase, amounting to CHF 188,000, was made in 2019 - the same year he retired. Upon retirement - about two months after the last pension fund purchase -, he made a capital withdrawal of CHF 223,873.90, with the remaining balance paid out as a regular pension. The cantonal tax administration qualified the last pension purchase of CHF 188,000 as non-deductible due to the subsequent timely withdrawal and its qualification as tax avoidance. The case was brought before the Federal Supreme Court for review.

Court Decision

The Federal Supreme Court confirmed that a withdrawal made within three years of the purchase of additional retirement benefits, in the context of divorce cases, does not necessarily constitute a violation of the three-year blocking period outlined in Art. 79 para. 3 BVG (German/French). Such withdrawals may instead qualify for the exception provided under Art. 79 para. 4 BVG (German/French). However, it would be possible to deny the tax deductibility based on ordinary tax avoidance rules.

In the case at hand, the Court decided that no tax avoidance was given, considering the overall facts and circumstances. Specifically, the taxpayer had only four years to address a significant pension fund gap, which was systematically and consistently filled according to a structured plan from 2016 until retirement. Focusing solely on the events of 2019 would fail to account for the broader context and overall circumstances which is necessary in tax avoidance cases. Consequently, the tax deductibility of the final pension fund contribution made in 2019 was confirmed.
 

Deloitte’s View
 

This ruling provides a welcome and taxpayer-friendly clarification with regard to purchases into the pension fund, aimed at filling gaps resulting from a divorce, followed by a subsequent timely capital withdrawal. We recommend considering this decision while carefully examining the applicability of this decision on a case-by-case basis.