Is holdback subject to the income tax?
In case 2C_731/2017 of November 12, 2018, the Federal Supreme Court had to decide whether a payment of CHF 854,003 qualified as taxable income or a tax-free capital gain.
The complainant, who was liable to pay taxes in the Canton of Solothurn, had sold his share in a public limited company (PLC) to a third company on June 1, 2012. According to a clause in the purchase agreement, he was to retain his employment relationship with the PLC for a further three years. In return, he would receive a payment totalling CHF 854,003 at the end of the three years.
Should the employment relationship be terminated beforehand due to incapacity for work or by mutual agreement, the purchase agreement provided for immediate payment of the sum.
On November 18, 2013, the employment relationship was terminated by mutual agreement and the CHF 854,003 paid to the taxpayer. On June 29, 2016, the complaintant and his wife were assessed by the relevant tax authority and the payment was added to taxable income.
The couple did not want to pay the income tax and unsuccessfully defended themselves by means of objections and going to court. They were of the opinion that the so-called "holdback" did not constitute taxable income but a tax-free capital gain.