F. HOFFMANN LA ROCHE AG

Transcription

1 F. HOFFMANN LA ROCHE AG TAX AND SOCIAL SECURITY IMPLICATIONS OF THE OCCUPATIONAL BENEFIT PLANS OF THE 2ND PILLAR FRENCH CROSS-BORDER COMMUTERS This summary outlines the general tax and social security implications for French cross-border commuters of the F. Hoffman La Roche AG regarding contributions and benefits with respect to the occupational benefit plans of the 2nd pillar. This overview is provided for informational purposes only and should not be relied upon as being either complete or conclusive. The consequences included below are in accordance with Swiss and French tax and social security laws and practices as of 1 July These laws and practices may change over time. The relevant bilateral agreements between Switzerland and the EU have been taken into account. The following comments only apply to employees who are working solely for the F. Hoffman La Roche AG in Switzerland (work performed in the cantons of Basel-Stadt or Basel-Land) and who are covered by the mandatory old-age and survivors' insurance (AVS) as well as the Roche Occupational Benefit Plan and the Supplementary Insurance of the F. Hoffman La Roche AG (former Pension Plan II). Furthermore, the cross-border commuters are nationals of EU or EFTA member states and do not perform any further work in their countries of residence. For definitive advice, employees should consult with their personal tax advisors regarding their specific tax and social security consequences. GENERAL TAXATION OF FRENCH CROSS-BORDER COMMUTERS Taxes Based on the agreement between France and selected Swiss cantons (excluding Geneva), the right of taxation of salaries, wages and other similar remuneration from employment of cross-border commuters is generally assigned to the country of residence (i.e. France), in exchange for a financial compensation paid to the other country. 1 All employees residing in France but working in the border zone of Switzerland and returning regularly home to France after work are considered French cross-border commuters. 2 Social security contributions Cross-border commuters, who are nationals of EU or EFTA member states are generally subject to the law and practice of the source country (country of work). 3 As a result, the French cross-border commuters are subject to Swiss social security contributions. TAX TREATMENT OF CONTRIBUTIONS TO AN OCCUPATIONAL BENEFIT PLAN Switzerland Any employee contribution paid to an occupational benefit plan is generally fully tax deductible for the individual in Switzerland. Since the French cross-border commuters are subject to full taxation in France, no such deductions can be made in Switzerland. France Since the French cross-border commuters are fully taxable in France, their net taxable remuneration is determined according to the French internal tax law. 1 Article 1 of the Agreement between the government of the French Republic and the Swiss Federal Council (representing the cantons of BE, SO, BS, BL, VD, VS, NE and JU) on the taxation of the remuneration of frontier workers dated 11 April Indeed, according to the new agreement between France and Switzerland (correspondence dated 21 and 24 February 2005), the employee should not spend more than 45 days per year without getting back to his French residence (it includes the nights spent in the State where the activity is performed, i.e. Switzerland, as well as business trips in an other State). This provision is applicable as from January 1st, Annex II of the Agreement between the European Union and its members states on one side and the Swiss Confederation on the other side regarding the Free Movement of Persons (in force since 1 June 2002) in conjunction with article 13 of the EU regulation no. 1408/71 of 14 June 1971 on the application of the social security systems to employees and their families who are moving within the Union. 1/6

2 1. FRENCH TAX LAW PRINCIPLES French general tax rules, the contributions made on a mandatory basis to complementary retirement and providence schemes are deductible to determine the net taxable remuneration providing certain conditions are met. Nevertheless, the French tax administration guideline dated July 27, commenting the cross-border provisions of the France-Switzerland tax treaty provides that the contributions withheld by the Swiss employers for the constitution of a retirement benefit are fully deductible without requiring any other conditions. However, the other risks which are covered by the plan (disability/death) are not expressly pointed out by the tax guideline. As a consequence, the general rule and conditions should be applied CONSEQUENCES ON THE DEDUCTIBILITY OF THE OCCUPATIONAL BENEFIT PLAN CONTRIBUTIONS the above mentioned tax guideline, there is no restriction for the employee on the deductibility of the contributions made for the pension part. However, the deductibility of the providence part would be limited if it exceeds the above-mentioned ceiling and even not permitted if the plan does not qualify for the French legal requirements, notably in case of payment of capital. In this regard, it is to be outlined that non-deductible employee contributions imply that the corresponding employer contributions constitute a taxable benefit. Furthermore, any voluntary contribution payments made by the employee are generally excluded. Nevertheless, according to our experience and due to the difficulty to differentiate the three components of the plan (i.e. all the contributions are accumulated to constitute a retirement benefit if no event entails the payment of the disability or death benefits), the totality of the employee contribution to the plan can be deducted to determine the taxable remuneration. TAX TREATMENT OF BENEFITS FROM AN OCCUPATIONAL BENEFIT PLAN Switzerland As a rule, any income awarded for past private employment such as pensions, retirement benefits, capital benefits or other forms of benefits from occupational pension plans (respectively from the provident institutions) are generally subject to Swiss wage tax withholdings (provisions of the applicable tax treaty may differ). Pensions Pensions are only subject to wage tax withholdings if there is no tax treaty between the involved countries. Since there is a tax treaty between France and Switzerland, no Swiss wage tax withholdings apply to pension payments. Capital benefits Capital benefits are always subject to Swiss wage tax withholdings, whereby special rates for occupational insurance benefits are applied on the gross amount. 6 These wage tax withholdings are, however, not final since the individual can reclaim the withheld amount. The amount will be fully reimbursed if the individual files the duly completed official form for this purpose within three years after deduction (filing of form and any relevant attachments). One of the attachments has to be sent to the relevant French Tax Authority (Direction des services fiscaux competent for the concerned individual). Thus, the individual has to provide the evidence that the foreign tax authorities (i.e. the French tax authorities) have been informed about the payout of the capital benefits to the individual. 4 Instruction fiscale dated July 27, 1981 (BOI 14 B-5-81). 5 The contribution must notably fulfill the following conditions: The contributions must be mandatory, The corresponding scheme must exclude the payment of capital except in case of death. Furthermore, the contributions paid to this scheme (employee + employer part) are deductible under the following limit which result from the addition of the below: 7% of the annual ceiling used to compute French social security charges (i.e. EUR 2,113 for 2005), + 3% of the gross annual remuneration. The total of the above cannot exceed 3% of 8 times the annual ceiling used for French social security contributions calculation (i.e. a limit of EUR 7,246 for 2005). 6 Article 11 of the QStV. 2/6

3 France Pensions Should the employee be a French tax resident at the time where related pensions are paid, they will be taxable in France according to the France-Switzerland tax treaty. The pensions will be subject to the French progressive income tax brackets after the deduction of the 10% and 20% standard deduction respectively capped to EUR 3,234, amount applicable to the total pensions of the tax household, and to EUR 23,580 (ceilings applicable to 2004 income). Furthermore, this pension should be exempted from CSG / CRDS (French social surtaxes) to the extent that the individual is not at the charge of a French mandatory sickness insurance. Capital benefits If the employee is a French tax resident at the time of payment, the capital benefit is taxable in France according to the tax treaty. In this regard, as explained above, the tax withheld in Switzerland will be reimbursed if the individual files the required forms. 1. Old-age benefit a French tax authorities guideline dated February 16, relating to the France- Switzerland tax treaty, it has been considered that retirement benefits paid in capital by a Swiss provident fund to a French tax resident do not constitute an income in the sense of article 1 of the French Tax Code and are, hence, exempted from any taxation in France. Please note that this tax guideline is only a general instruction, which is currently applied in France, but it is not part of the French tax law. Therefore, this tax guideline may be subject to changes in the future. Nevertheless, the capital paid to the employee will be added to his/her net wealth subject to French wealth tax. Should this net wealth exceed EUR 732,000 as of 1 January of a given year (threshold applicable on January 1st, 2005), the individual will be liable to French wealth tax. It should be outlined that this provision is specific to the France-Switzerland tax treaty. Indeed, French domestic law does not provide any exemption on lump sum payments made by pension schemes since France does not recognize pension payments made as a capital. 2. Disability benefit As for retirement, French domestic tax law does not provide any exemption on lump sum payments made according to providence scheme for disability. Nevertheless, by analogy and according to the drafting of the above mentioned tax guideline, we have strong arguments to consider that the disability benefit paid by way of a capital payment can also be exempted from French. The amount received should be exempted from French wealth tax to the extent that it is paid to the victim in person and to another party to compensate a physical injury. 3. Death benefit The death capital is not subject to French but is a matter for tax inheritance law which provides an exemption for the capital received in accordance with a death insurance contract. 8 Regarding group insurance, concluded in the framework of the professional activity, no withholding has to be made in France by the insurance company at the time of payment. Overview The table included below contains further detailed explanations on the tax and social security implications regarding specific pension plan contributions and benefits. The comments on the French and Swiss tax consequences solely apply to French cross-border commuters. Furthermore, the overview is general in nature and should not be relied upon as being either complete or conclusive. 7 Instruction fiscale dated February 16, 1996 (14-B-1-96). 8 Except for the premiums paid after the age of 70 years if the contract has been concluded after November 20, /6

4 A) Contributions to an Occupational Benefit Plan Regular contributions (obligatory occupational pension plan) Insured salary: 41% of base salary Swiss contributions are directly deducted from gross employment income: No wage tax withholdings No tax deductions possible Deductibility of the employee contribution payments to determine the net taxable remuneration. Exemption of the Employer contributions. Employee (0.5% up to the age of 25, 8.5% for 25 and above) Employer (0.5% up to the age of 25, 17% for 25 and above) Supplementary contributions ("overobligatory" part of the occupational pension plan) Insured salary: 55% of salary exceeding the base salary Swiss contributions are directly deducted from gross employment income: No wage tax withholdings No tax deductions possible Deductibility of the employee contribution payments to determine the net taxable remuneration. Exemption of the Employer contributions. Employee (0.5% up to the age of 25, 8.5% for 25 and above) Employer (0.5% up to the age of 25, 17% for 25 and above) Voluntary contribution payments If the pension plans allow for gaps in the insurance cover, additional voluntary payments made by the individual are possible, up to the full maximum insurance coverage Theoretically, the full amount would be tax deductible, however, due to the tax status of the employee, no tax deduction possible Not deductible. B) Occupational insurance benefits 1) Occurence of insured event Pension scheme Retirement assets (old-age-, invalidity- or death assets) Only pension possible Old-age benefits Annual pension of 6,8% of the retirement assets. Invalidity benefits Full pension: 6,8% of the retirement assets. Survivors benefits 60% of the old-age resp. invalidity pension. No wage tax withholdings due to double tax treaty CH FR. Pension annuities are subject to French personal income tax according to the rules applicable to pensions: - French progressive income tax brackets, - Deduction of a 10% and 20% standard deduction capped to EUR 3,234 (for the tax household) and EUR 23,580 (ceilings applicable to 2004 income). Capital accumulation plan (old-age-, invalidity- or death assets) Option of choice Pension: see above. One-time cash payout. Mix: Combination of cash payout and pension payment. Pension: No wage tax withholdings due to double tax treaty CH FR. Pension annuities: see above. Old-age and invalidity: No taxation in France due to a specific tax authority guideline (please refer to page 3). Death: Not subject to French and in principle exempted from inheritance duties. 4/6

5 1) Occurrence of insured event (cont d) Supplementary insurance Retirement assets (old-age-, invalidity- or death assets) Option of choice: Old-age benefits as pension/capital benefit/mix Only pension: Invalidity benefits Full pension: 6,8% of the retirement assets. Survivors benefits 60% of the old-age resp. invalidity pension. Pension: No wage tax withholdings due to double tax treaty CH FR. Same comments as above. Employee profit-sharing foundation supplementing pension benefits Entitlement to profit participation in case of retirement, invalidity or death (share in assets of foundation). In case of an early exit from the scheme: transfer of vested benefits according to the applicable federal law. Old-age and invalidity: No taxation in France due to a specific tax authority guideline (please refer to page 3). Death: Not subject to French and in principle exempted from inheritance duties. 2) Cases of an early exit from the Occupational Benefit Plan Vested benefits a) Usually transfer to new provident institution (if new Swiss employer) or blocked account until retirement age resp. invalidity. b) Cash payout only in exceptional cases. 9 a) No income, no taxation. b) Tax free, since deferred benefits. In case of a later payout as capital benefit: a) The transfer of the rights to a new provident institution and to the same kind of plan or to an account blocked until retirement age does not imply the availability of the funds. As a consequence, no taxation is due at the time of transfer. b) Cash payout: the funds are available and therefore taxable providing the exemption applicable to capital benefits (see page 3). Divorce a) Split of retirement assets according to the legal provisions (reduction of benefits). b) Repayment to the provident institution possible (up to the amount of the reduced benefit). a) Tax free, since deferred benefits. b) Theoretically, the full amount would be tax deductible; however, due to the tax status of the employee, no tax deduction possible. a) If the 50% part to be transferred to the exspouse is blocked in a specific account as provided by Swiss law, the related transferred benefits cannot be considered as taxable income (no availability of the funds at the time of the transfer). In case of cash payment of the funds to the spouse (i.e. the funds are transferred to a French bank account) the funds will be considered as available and therefore be considered as taxable at the time of transfer. The above rules relating to the terms of taxation of pension and to the exemption of capital benefits should be applicable (please refer to page 3). b) In case of repayment to the provident institution of the funds transferred to the exspouse, no tax deductibility should be allowed since it corresponds to a free disposition of wealth and not to a tax deductible contribution withheld by the employer from the remuneration. 9 Obligatory occupational pension plan: article 5, section 1a) of the LFLP a one-time cash payout is amongst others only possible, if the insured employee leaves Switzerland permanently. As of 1 June 2007 (based on the Free Movement of Persons Treaty): no cash payout is possible anymore, if the employee is subject to the French obligatory insurance concerning old age, survivors and invalidity. The over-obligatory part of any departure benefit is excluded from this cash payout restriction. 5/6

6 2) Cases of an early exit from the Occupational Benefit Plan (cont d) Home ownership a) Advanced capital payout for acquisition of home ownership for personal use and permanent residency (also for acquisitions in France). the legal provisions certain conditions apply (reduction of benefit). b) Pledging of right to providence benefits/vested benefits. the legal provisions certain conditions apply (reduction of benefit). c) Repayment to the provident institution possible (up to the amount of the reduced benefit). a) Capital benefit: Wage tax withholdings (special rates) on the gross amount of the capital benefit (reclaim possible). b) No income, no taxation. The pledging of right to providence benefits/vested benefits is rather unlikely if the property is located abroad and no equivalent securities can be produced. c) Theoretically, the full amount would be tax deductible, however, due to the tax status of the employee, no tax deduction possible. a) In this case the funds become available. The exemption provided for capital benefits should be applicable (please refer to page 3). b) In case where the rights to the providence benefits are pledged, it should be considered as available for tax purposes upon the exercise of the guaranty by the bank. Nevertheless, since the said rights would be materialized through the payment of a capital in case the guaranty is executed by the bank, the income tax exemption of capital benefits could be applied (please refer to page 3). c) In case of repayment to the provident institution of the funds used for the acquisition of home ownership, no tax deductibility should be allowed since it corresponds to a free disposition of wealth and not to a tax deductible contribution withheld by the employer from the remuneration. 6/6