Payout from the 3rd pillar for Swiss retirement
March 21, 2014 | 30,00 EUR | answered by Anton Pernitschka
My husband is Swiss and lives in Munich. This year, he withdrew the 3rd pillar (approximately 230,000 CHF). In Switzerland, about 26,000 CHF were immediately deducted as withholding tax. Is it correct that he can get this tax back if he declares this withdrawal in his tax return in Germany? In turn, how much tax would be due on this amount in Germany?
Dear questioner,
In the context of an initial consultation and your fee, in compliance with the regulations of this forum, I would like to answer the question.
The legal classification of the Swiss pension fund as an "extended general statutory pension insurance" is derived from the statutory coordination of the Swiss pension fund with AHV and the structure of pension funds. Since § 10 para. 1 no. 2 EStG and corresponding § 22 para. 3 sentence 3 letter a double letter aa EStG cover benefits from foreign statutory pension insurances, the Swiss pension fund is a statutory pension insurance in this sense (Federal Fiscal Court judgment of 25.03.2010, BFH/NV 2010, 1275).
Lump sum payments from a Swiss pension fund are generally taxable since 2005, however, there are distinctions to be made.
Lump sum payments that are subject to exclusive taxation in Germany as a retirement pension according to Article 18 of the Double Taxation Agreement with Switzerland dated 21.12.1992 (DBA) may exceptionally be tax-free as a "capital settlement" according to § 3 no. 3 EStG (Federal Fiscal Court judgment of 25.03.2010). The condition is that the capital settlement is made to compensate for a retirement or pension entitlement. It must not be a pension in only a modified payment method, namely in capitalized form, but a (reduced) replacement for the loss of a retirement or pension entitlement.
The legal basis for the establishment and management of pension funds was established by the Swiss Federal Law on Occupational Old-age, Survivors' and Invalidity Insurance (BVG) with effect from 01.01.1985. If a pension fund existing before this date was closed, neither existing pensioners nor future pension payments fall under the BVG, meaning that payments are not considered as such under German statutory pension insurance. For such pension payments, taxation continues only with the profit portion according to § 22 para. 3 sentence 3 letter a double letter aa EStG after 2005.
If the relevant Swiss pension fund has been transferred to the BVG, since 2005 the taxation of ongoing pension payments as well as lump sum payments is done with the taxation portion, regardless of whether the contributions were made before or after 01.01.1985. This also applies to lump sum payments on the occasion of early retirement (FG Baden- Württemberg from 03.05.2010 14 K 4048/08).
The "third pillar" is intended to reduce or close gaps in provision from the first and second pillars. The third pillar distinguishes between tied and free provision.
However, based on the context provided, it is not clear which types of provision were made or whether the pension payment would be subject to taxation in Germany with the profit portion or if tax exemption could potentially apply.
If in the present case the legal classification of the Swiss pension fund as an extended general statutory pension insurance can be derived, the benefits should be taxed according to the above criteria.
The avoidance of double taxation is regulated in Article 24 of the DBA. According to this, the Swiss tax levied and not refundable on income from Switzerland is credited against the German tax attributable to this income, in accordance with German law on the crediting of foreign taxes.
The answer is provided based on your description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
Considering your fee and the unclear situation, it is advised to seek further information from a registered tax advisor.
Best regards,
Anton Pernitschka
Tax advisor
