Withdrawal of pension fund capital within a three-year blocking period

In principle, purchases into the pension fund may not be drawn during a lock-up period of three years after the deposit, otherwise, they cannot be deducted from income. Exceptions to this limitation include repurchases in the event of a divorce or judicial dissolution of a registered partnership.

According to the Federal Court, tax avoidance is present when an unusual, inappropriate, or eccentric procedure is chosen, which appears completely unreasonable under economic conditions, if this procedure can only be explained by the intention to save taxes, and if the unusual procedure actually leads to tax savings. This deliberately very general legal situation covers cases of various kinds. In the area of retirement provision, it is considered abusive, for example, when a purchase into the pension fund is made and this is subsequently drawn after deduction in income. Therefore, there is generally a lock-up period of three years after the deposit of purchases into the 2nd pillar. On June 14, 2017, the Federal Supreme Court dealt with a case where a taxpayer from Schwyz withdrew the pension fund capital within this lock-up period of three years. The complainant had divorced his wife in 2007, resulting in her being assigned half of the paid-in capital. To fill the resulting gap, he made repurchases into the 2nd pillar in 2007, 2009, and from 2010 to 2012. In 2013, he withdrew pension fund capital. The Schwyz tax administration saw this as tax avoidance and denied the tax reduction on the purchases in the years 2010 to 2012. They referred to the three-year lock-up period, according to which purchases are not tax-deductible if capital is drawn from the pension fund within the lock-up period of three years after the last payment. The subsequent objection and appeal were dismissed, which is why the case went to the Federal Court. However, the Federal Court judged the facts differently. It referred to the exceptions in Art. 79b, Sec. 4 BVG, which states that repurchases in the case of a divorce are exempt from the limitation. The limitation mentioned in Sec. 4 concerns not only the amount of the purchase but also the lock-up period. After a divorce, divorced spouses should be enabled to re-establish themselves provisionally as before the divorce. To close the gap created by the division of the pension fund capital, a repurchase should be possible even within the three-year lock-up period. In this case, tax avoidance cannot be assumed. The complainant had already made initial repurchases shortly after the divorce. It was not unusual that he spread the purchase of the remaining amount over the years 2010 to 2012, as it involved large amounts. Moreover, the taxpayer had to involuntarily retire early at the end of 2012. The requirements for assuming tax avoidance are high and it is not evident that they have been met here.‍

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