Federal Supreme Court on Pension Fund Purchase Shortly Before Leaving Switzerland

In its decisions of 21 February 2025 (9C_349/2024 and 9C_350/2024, in French), the Federal Supreme Court addressed whether a pension fund purchase made by a C-permit holder residing and working in Switzerland could be deducted from taxable income if carried out shortly before leaving the country permanently. The Court determined that such a purchase would be deemed abusive and, as a result, the deduction would not be allowed.
 

Fact Pattern

The taxpayer, a French national holding a C-permit, resided and worked in Switzerland during two periods: from 2008 to 2012, and later from 2014 to 2021. She left Switzerland on 30 September 2021 to take up a new employment abroad. Prior to her departure, she coordinated with the migration office to secure the option of returning smoothly if needed, this arrangement being valid until 30 September 2025. In 2021, before leaving the country, the taxpayer made two pension fund purchases totalling CHF 242,000. After her departure, she transferred the pension funds to two vested benefits accounts held with separate institutions located in cantons offering favourable tax rates (tax at source).

The Neuchatel Cantonal Tax Administration rejected the deductibility of the two purchases, despite the fact that the taxpayer was still employed at the time they were made. The Tax Administration reasoned that she was already aware of her impending departure from Switzerland and had the potential to withdraw the funds, even though she did not do so. Furthermore, the unusual high amount of the purchases, coupled with the fact that the taxpayer would have had sufficient time to address the gap if she stayed or returned to Switzerland, led the Neuchatel Tax Administration to conclude that the purchases constituted a tax abuse. Lastly, the transfer of the funds to two vested benefits accounts was viewed as evidence of deliberate tax structuring, aimed at enabling a withdrawal with minimal source tax.

Court Decision

The Federal Supreme Court dismissed the taxpayer's appeal, concluding that the purchases constituted tax abuse. The Court found that the taxpayer failed to provide sufficient evidence of a genuine intention to return to Switzerland and continue working here, particularly as her arrangement with the migration office could have been unilaterally cancelled at any time.

In a previous case (2A.461/2005, in French) the Federal Court addressed a somewhat similar situation, in which a taxpayer made a pension fund purchase just one week before leaving Switzerland. The taxpayer subsequently transferred the pension funds to a vested benefits account and later moved the amount to her savings account. The Federal Supreme Court ruled that such a purchase lacked purpose from the perspective of the Swiss pension system, as there was no evidence to suggest that the taxpayer intended to return to Switzerland and continue contributing to her pension fund. This lack of intention to return, rather than the withdrawal itself, was the key reason for denying the deduction.

Deloitte’s View

With this decision, the Federal Supreme Court confirmed and strengthened the previous decision 2A.461/2005. Based on the wording of the Court's decision, it appears that the Federal Supreme Court holds the view that, as long as there remains any uncertainty regarding the return to Switzerland, such actions should be regarded as abusive. However, in our opinion, room for tax deductibility remains if the taxpayer can demonstrate that, at the time of the pension fund purchase, they were not aware of – nor had any intention to – leave Switzerland, with the aim of the pension fund purchase being the improvement of the retirement situation.

Authors

• Thomas Hug - Partner, National Tax Office
• Gille Dozot - Senior Manager, Tax & Legal
• Daniela Martinis-Arth- Manager, National Tax Office