Taxation of pension arrears as capital benefits for recurring services

Facts

The complainant [A.] suffers from an occupational disease and received a retroactive payment of pension benefits from the Swiss Accident Insurance Institution (SUVA) for the period from 3 May 1982 to 31 December 1994 in the amount of CHF 328'908.--. The tax administration of the canton of Basel-Stadt accounted for this retroactive payment as income and calculated the tax accordingly. The complainant requested that the retroactive payment be taxed as a capital benefit for recurring services pursuant to Art. 37 DFTA.

The Tax Appeals Commission of the canton of Basel-Stadt dismissed the complaint, and the complainant filed an administrative appeal with the Federal Supreme Court. The Federal Supreme Court had to decide whether the pension arrears should be taxed as a capital benefit for recurring services pursuant to Art. 37 DFTA.

Considerations

The Federal Supreme Court stated that the pension arrears cannot be qualified as a capital benefit pursuant to Art. 38 DFTA, as it was not intended to compensate the complainant's pension claim for future services in a single payment. The tax authorities assumed that the retroactive payment was to be taxed as replacement income pursuant to Art. 23 lit. b DFTA.

However, the Federal Supreme Court found that the retroactive payment is to be qualified as a capital benefit for recurring services pursuant to Art. 37 DFTA, as it would have been paid periodically in the normal course of events and was settled subsequently in the form of a single capital benefit without any action by the complainant. The tax authorities had wrongly excluded privileged taxation pursuant to Art. 37 DFTA.

The Federal Supreme…