specific swiss taxation issues

Advance rulings

Swiss tax laws are, in general, very abstract. Thus, it is often useful to get an advance ruling where the tax authorities give information on taxation of a future transaction (e.g. a restructuring). Advance rulings are normally binding if all following conditions are met:

1. The future transaction (or facts) must be described in detail (including names of taxpayers involved etc.) and true;
2. The tax authorities providing for the ruling must be competent; 
3. The information of the tax authorities must not be obviously wrong.
4. The taxpayer takes measures which cannot be cancelled easily;
5. The legal situation does not change;

A wrong ruling, however, may not be binding, even if all those conditions are met. If the information of the ruling was wrong (but not obviously), the ruling is only binding if the bona fide protection of the taxpayer (principle of reliance) prevails over the correct application of the law.

Employee stock options

One of the characteristics of the Swiss income tax system is that capital gains on private property (excluding real estate) are tax-free (at least in principle). Thus, capital gains realized on the sale of shares, options and other securities are usually not taxed in the hands of the vendor. This applies to both federal and cantonal/municipal income taxes.

This is probably the main reason why the issue of employee stock options is immediately taxed in Switzerland (whereas most other countries levy their income taxes later, e.g. if the options are exercised or sold and thus, include the capital gain and loss respectively). Basically, the Swiss income tax is levied on the difference between the fair market value of the option and the price paid at the time of the issue. This difference is classified and taxed as employment income. The fair market value will be reduced by a certain discount if the options are combined with temporary transfer restrictions.

The development of the options after the issue (increase or decrease in value) is - in general - tax-neutral. This is very advantageous for the recipient (employee) if the value of the option goes up but there are two disadvantages: first, the employee must pay the tax out of his other (cash) income and second, the employee cannot claim back the tax paid if the value of the option goes down later.

The immediate taxation, however, only applies if the options are assessable. This is, in general, not the case with start-up enterprises, options on non-listed shares and if there are very long transfer ristrictions or other unusual conditions. In these cases, the Swiss income taxes are not levied immediately but later (e.g. maturity or sale).


© by Toni Amonn, Berne, Switzerland, pictures by berne tourism