Tax Consequences Of Restructuring Of Pension Fund Assets

• Published date: 16 June 2022
• Subject Matter: Employment and HR, Real Estate and Construction, Tax, Retirement, Superannuation & Pensions, Real Estate, Tax Authorities
• Law Firm: Prager Dreifuss
• Author: Dr. Roland B'hi and Florian Büchler

1. Introduction

Various federal legal laws encourage saving in the form of occupational pension plans. In this context, not only the paying-in professionals benefit from tax advantages, but also the pension funds which do not pay taxes on their profits. Until now, the tax consequences of pension fund restructurings were largely unclear. Many transactions had to be secured in advance with the tax authorities through rulings. Now, the Federal Supreme Court has provided clarity in one area.

2. REAL ESTATE GAINS TAXES IN CASE OF RESTRUCTURING OF PENSION FUND ASSETS (JUDGEMENT OF THE FEDERAL SUPREME COURT 2C_380/2021 OF FEBRUARY 28, 2022)

A. FACTS

The purpose of Pension Fund A is to provide occupational pension benefits. The purpose of Zurich Investment Foundation is the collective investment and management of assets exclusively serving the purpose of providing occupational pension benefits and is exclusively open to tax-exempt occupational pension institutions domiciled in Switzerland. Both the fund and the foundation are exempt from profit tax. Pension Fund A transferred several properties to the Zurich Investment Foundation and in return received no-par and irrevocable claims to the Investment Group I (so-called "real estate asset swap"). In simple terms, Pension Fund A transferred its real estate into a vessel containing further real estate and received a certain percentage of the return on all assets from this vessel instead of the return on the previously held real estate. The transaction converted previous direct real estate holdings into indirect real estate investments. The intended economic purpose was a more efficient management of the real estate as well as securing a broader diversification of risks.

With the exception of the tax administration of the City of Zurich, all cantons involved had confirmed the tax neutrality of these transactions in rulings. The tax administration of the City of Zurich, however, assessed real estate gain taxes for the properties located in Zurich.

B. CONSIDERATIONS OF THE FEDERAL SUPREME COURT

Pursuant to the Tax Harmonization Act applicable throughout Switzerland, the cantons are not allowed to tax real estate gains in the case of tax-neutral reorganizations (tax deferral). In the case of demergers, it is however always necessary that one or more operations are transferred, whereby after the demerger the existing legal entities each continue to conduct an operation. If assets are transferred without employees, this...