BGer ruling 9C_666/2024: Capital gain or earned income

In its ruling 9C_666/2024 of February 26, 2025, the Federal Supreme Court had to deal with the question of whether the gain of CHF 220,000 from the resale of shares - in a company affiliated with the employer - by the employee to her employer should be qualified as tax-free capital gains or as taxable earned income. The decision was made in the context of a disputed sale of shareholdings within a group of companies. The ruling provides further clarity on the distinction between tax-free capital gains and taxable income from employment.

Issue: Sale of shareholdings within a group of companies

The complainant A., resident in the canton of Schaffhausen, was an employee of B. AG. B. AG and D. each held a 50% stake in B. SA. (see visualization). At the end of 2016, D. sold 20 shares in B. S.A. (corresponding to 10% of the share capital) to A. for a total purchase price of CHF 220,000. Around six months later, on June 29, 2017, A. sold these shares for CHF 440,000 to her employer B. AG for CHF 440,000.

Point of contention: capital gain or earned income?

It was disputed in the present ruling whether the difference between the original sales price and the resale of the shares in the amount of CHF 220,000 should be offset as taxable earned income for the appellant A. or whether it is a tax-free capital gain.

Considerations of the Federal Court

Tax law basics: Differentiation between income and capital gains

The concept of income is harmonized in Swiss tax law at both horizontal and vertical levels (Art. 7 para. 1 StHG; Art. 16 ff. DBG) and includes all recurring and non-recurring income that is not tax-exempt (Art. 7 para. 1 StHG; Art. 16 para. 1 DBG).

In particular, all income from employment, i.e. from employment under private or public law, is taxable (Art. 7 para. 1 StHG; Art. 17 para. 1 DBG). It does not matter whether the remuneration is in cash or in other forms or whether the remuneration is intended for the main job or a secondary job. Benefits from third parties can also be attributed to employment income if they were paid to the taxable person in connection with the employment relationship.

A benefit is deemed to be income from employment if there is an economic connection between the taxpayer's activity and the benefit received. This also applies to the acquisition of shares at a preferential price if the shares serve as consideration for work performed or to be performed in the future. The decisive factor is the reason for the transfer of assets, not whether the shares come from the employer or a third party.

In contrast, capital gains from the sale of (movable) private assets are exempt from taxation (Art. 7 para. 4 lit. b StHG; Art. 16 para. 3 DBG).

Lower court: Taxable benefit from the employment relationship

The Schaffhausen High Court came to the conclusion that the amount of CHF 220,000 should be qualified as taxable earned income. The doubling of the sales price after only around half a year could only be explained by the fact that the amount of CHF 220,000 served to remunerate the appellant for her services as an employee. The purchase and sale of the shares at a premium was intended to enable the complainant to claim a tax-free capital gain from the tax authorities. This leads to considerable tax and social security advantages for the parties involved (compared to a conventional salary payment). Based on the overall circumstances, it can also be assumed that the contracting parties had already agreed at the time of the share purchase in December 2016 that A. would sell the shares to B. AG at a profit (i.e. already existing repurchase intention).

Federal Court: Confirmation of income tax liability

The Federal Supreme Court confirms the ruling of the Schaffhausen High Court and classifies the CHF 220,000 to be assessed as income from gainful employment (Art. 7 para. 1 StHG; Art. 17 para. 1 DBG). The economic connection to the professional activity was obvious here, as B. AG guaranteed the complainant a secure resale opportunity at a profit.

Classification: Caution with employee participation and buy-back models

The ruling clarifies the distinction between tax-free capital gains and taxable earned income in connection with share profits within a group of companies. It emphasizes that tax-free private capital gains are in conflict with the principle of taxation according to economic performance (Art. 127 para. 2 BV) and the principle of access to net assets. Accordingly, transactions aimed at private capital gains must be planned with particular care.