The classification of dividends paid to employee-shareholders under social security law requires a distinction to be made between non-contributory investment income and contributory taxable income. The starting point is the allocation chosen by the company and the employee-shareholder.
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The classification of dividends paid to employee-shareholders under social security law requires a distinction to be made between non-contributory investment income and contributory taxable income. The starting point is the allocation chosen by the company and the employee-shareholder.
If the social security authorities can prove that a payment is based on the employment relationship, the payment is considered taxable income. The modified Nidwalden practice and its limitations do not apply in such cases. If this proof cannot be provided, circumstantial evidence may nevertheless lead to the natural presumption that part of the dividend constitutes taxable income and is subject to social security contributions.
The so-called modified Nidwalden practice requires, for this purpose, an obvious disproportion between work performance and wages as well as between invested capital and investment income: Only if both conditions are cumulatively met is a reclassification of dividends as taxable income permissible. The appropriateness of the dividend is generally measured against the wealth tax value, with dividends exceeding 10% considered potentially excessive. The salary must be assessed through a third-party comparison. Special cases such as minority shareholders, asymmetric dividends, bonus models, debt waivers, or asset-based dividends are evaluated on a case-by-case basis.
As part of a future AHV revision, the Federal Council is considering new legislation under which dividends with a significant connection to the employment relationship would be subject to contributions. While this would simplify the current two-step assessment, it carries risks such as the reintroduction of the economic double taxation of dividends and the inappropriate treatment of asset dividends.
The distinction between taxable wages and investment income is an issue in social security law that is based on extensive administrative and judicial practice. The reason for this is obvious: wages are subject to social security contributions, whereas dividends are generally not subject to contributions. This simple principle has led to numerous disputes between contributors and social security authorities. To provide an overview, the following section examines the requiremen
Reclassification of profit distributions as relevant salary | zsis.ch
