Pension funds may transfer their real estate to an investment foundation tax-neutrally. For such asset swaps, the taxation of the real estate capital gain will be deferred. What most cantons confirmed long ago, now applies uniformly to all cantons, according to a Federal Court decision published last week.
For years, there has been a tendency for pension funds to spin off their real estate holdings into investment foundations. The assets remain tied to the pension purpose. However, more efficient real estate management as well as broader diversification should increase the returns on pension assets, which have come under pressure. Some cantons and municipalities made such a conversion from direct to indirect real estate investments more difficult by taxing the real estate capital gains when the properties were transferred to the investment foundation.
This constellation was also the basis for the above mentioned decision of the Federal Supreme Court. A pension fund contributed its entire real estate portfolio to an investment foundation. In return, it received participation rights in the investment foundation. While other cantons allowed this step tax-free, the tax authority of the City of Zurich wanted to levy real estate capital gains tax on the properties. After the Tax Appeal Court and the Administrative Court of the Canton of Zurich had already ruled in favour of a tax deferral, the Federal Supreme Court now confirmed the tax neutrality pursuant to Art. 80 para. 4 sentence 2 BVG. According to this, no taxes on profits may be levied in the case of splits of pension funds.