Classification of dividends paid to a shareholder-director as determinant income

Facts

Company X. AG was subject to supplementary contributions from the Compensation Fund of Nidwalden for the years 2002 to 2005, on the grounds that a portion of the dividends paid to Y., the chairman of the board of directors and shareholder, should be considered as determinant salary. The company appealed against this decision.

Considerations

According to case law, dividends are in principle exempt from contributions, as they constitute income from assets and not income from gainful employment. However, when a company pays benefits to employees who are also holders of participation rights, it must be examined whether these benefits constitute remuneration for work (determinant salary) or a distribution of profits (income from assets).

The practice developed by the Compensation Fund of Nidwalden, which consists of considering as determinant salary the portion of dividends exceeding 15% of the share capital, does not take into account the tax concept and is not in…