In its judgment 9C_272/2024, our High Court confirmed that asymmetric dividends based on the performance of employee-shareholders are subject to social security contributions. This case law therefore does not analyze the dividend from the perspective of obvious disproportion, but from the perspective of the correlation between the performance of the employee-shareholder and the dividend received. If the performance of the employee-shareholder influences the amount of their dividend, the latter is treated as part of their salary and is therefore subject to social security contributions.
A, B, C, and D are equal shareholders in E SA (a law firm). All four are also employees of the company. During an audit, the compensation fund’s auditing body determined that from 2015 to 2019, the company had made asymmetrical dividend payments. As these dividends were variable and did not reflect the shareholding ratio, the compensation fund concluded that the amount of the dividends was derived from the employment relationship.
The Federal Court first points out that social security contributions are only levied on income from gainful employment and not on investment income. Thus, dividends paid by a company to its employee-shareholders should be exempt from social security contributions, unless they are reclassified as part of the employee’s salary.
However, a dividend may be reclassified as a salary component subject to social security contributions if there is a causal link between the individual work performed by the employee and the amount of the dividend. If there is a clear correlation between the two, the dividend is considered to be similar to a bonus or loyalty bonus and is therefore subject to social security contributions.
Through this judgment, our High Court clarifies its case law concerning dividends that are clearly disproportionate to employee-shareholders: the authority is able to reclassify a dividend as part of the salary, without having to demonstrate that the amount of the dividend is excessive in relation to the value of the company’s shares (e.g., greater than 10% of the latter, as held in previous judgment) or that the employee/shareholder does not receive adequate salary remuneration in addition to the dividend.
In our opinion, this judgment is questionable: we believe that it should be up to the authorities to set a minimum salary for shareholders based on statistical data (e.g., in this case, based on the salary of an associate lawyer) and to allow taxpayers the freedom to receive any surplus remuneration as they wish.
The judgment is also difficult to reconcile with the practice of certain cantons that still systematically reclassify remuneration as “excessive salary” (e.g., Geneva), thereby obliging the employee/shareholder to draw dividends to remunerate themselves. However, with such a judgment, the dividend would be subject to social security contributions because it is directly related to the employment relationship. This leads to a difference in treatment between tax law and social security law that has no basis.
