Liquidating shares portfolio & capital gains tax (professional trader status)

Finance, Taxes, Banking, Insurance and Retirement
1
Hello forum,

I have a question about liquidating my portfolio of shares in Switzerland. Specifically, I would like to use Swiss "no capital gains tax" policy to avoid paying capital gains tax. In order to be successful with this I need to avoid being classified as a professional trader and attracting capital gains tax.

Situation:

I lived in the UK for some time and last year I relocated to Switzerland. During my time in the UK I worked for an employer who gave me RSUs (Restricted Stock Units - basically options for company shares) as part of my compensation package. The RSUs would vest on quarterly basis and over the years I have built a decent portfolio of company's shares. I am working for the same employer (global company) in Switzerland and the same RSU rewards continued here following the same principle.

Professional Trader rules for Switzerland:

1. You hold securities for at least 6 months before you sell them. -> This rule should not be triggered as I held awarded shares for the long term.

2. The transaction volume of all of your securities trades combined (total spent on purchases and total earned on sales) is not higher than 5 times the total value of your securities at the start of a tax year. As I would be selling the portfolio that is roughly the same size I had at the beginning of the year I do not think that would an issue. The size of the portfolio would only increase due to share price increase and additional RSUs -> but this would not be factor 5x.

3. Capital gains generated through securities trading do not account for a significant portion of your basic income. The rule of thumb: Capital gains should account for less than 50 percent of your net income. This is the rule that concerns me. As I had been awarded significant amount of RSUs over time, and company share price increased, capital gains would exceed 50% of my net income.

4. You use your own assets to finance the purchase of securities. Or: Taxable returns like interest and dividends are higher than interest owed on loans. I assume no issues here as I was awarded RSUs by my employes as income, and I paid tax upon vest. So no financing used.

5. If you invest using derivatives – and options in particular – these can only be used to hedge your own securities. I am not using derivatives. And although RSUs are technically options exercised by the company this is no speculation, just a way of awarding shares. I may be buying some ETFs in the future but that's about it. So I assume no issues here.

Here are my questions:

1. Do you think that the volume of shares sold, and amount of capital gains exceeding 50% of my net income, would be sufficient for authorities to classify me as professional trader?

2. Any other thoughts on the situation given the 5 professional trader rules - did I miss something?

3. Would liquidating my portfolio attract any other taxes or social security payments (such for pension, unemployment etc) - with or without the status of the professional trader?

I am planning to reach out to tax office in my canton to ask them the same questions. However, having some insights before this conversation would help put me in a better position ahead of the conversation.

Thanks in advance!

2
after you talk to the tax office if they agree it you are not a professional trader, you could ask for a binding ruling in advance of the sale.

if you have no urgency for liquidation, you could also liquidate <50% now and the remainder next year. then at least 50% of salary falls within the safeharbour. the "problem" is if the value is, say, 10x your annual salary and it is too cumbersome to spread it over time.

but i doubt very much that someone who just accumulates RSUs from employement and then sells them could ever be classified as a professional trader. in fact, if you tried to come up with the situation least likely to be caught, it would probably be the situation of an employee getting shares from employment and then selling them.

3
Considering that we're already in November, this is probably the easiest solution -- split the sale over two calendar years. Based on what you have said, I think that you can successfully argue that you are not a professional trader.

4
Presumably for point 3 you should measure the capital gains vs net income over the same period. So very simplistically, if you built up your capital gains over 5 years of accumulating stock, presumably this can be compared to 5 years employment income and you're much less likely to have a problem. May be you can get guidance on exactly how that should be calculated.

5
To obtain "safe haven" status, the five criteria must be fulfilled cumulatively. However, "if not all of these criteria are met, it must be examined on the basis of the entire circumstances in the specific individual case whether private asset management or whether securities trading on a commercial basis exists."

"According to the recent case law of the Federal Supreme Court, the following criteria are in the foreground:

Frequent securities transactions and a short period of ownership show that the aim is not a medium- or long-term capital investment, but rather the rapid achievement of profits. This speaks for a commercial approach. The use of substantial borrowed funds is also an indication of professional securities trading, especially if securities profits are needed to cover debt interest and expenses. If derivatives are not only used to hedge the own securities portfolio and if a large volume is traded in relation to the total assets, the trading in derivatives is to be considered speculative, which indicates a professional approach."

See original German text at this link:

https://www.weka.ch/themen/steuern/j...en-sie-achten/

6
If the company is public, that would be easy. In cases where the company is private there could be stipulations that if you sell you sell everything. So not always an option.

Interesting to see the outcome here, because there can be the case where RSUs are more than the salary, so ruling that as "professional trader" would probably be excessive on the tax office's side.

7
Thanks all for your responses, and apologies for the delay - my newborn is keeping me busy these days....

It seems that everyone is thinking along the same lines as me - I do not feel that taxman would have a strong case to consider me a "professional trader" but you never know. And in this case I rather be safe than sorry.

Splitting RSUs across multiple years is a good strategy but I may be in Switzerland only 1-2 years so this may not be practical as I also want to ensure that I liquidate my shares at a good time when price is up + there are blackout periods imposed by the company which can limit my ability to execute. Bottom line, I want to be able to act quickly and preferably be able to do it in one go.

The overarching idea was to sell shares without paying capital gains (effectively "zero out" capital gains), and subsequently use the proceeds received to make investments in other shares/funds. I was thinking even buying back the same shares so I "cancel" all of the gains form previous years and I keep the shares. So when I move on from Switzerland, and I decide to sell my shares in the future is some other, less capital gains friendly country, my capital gains should be lower. This strategy looks clean to me as Swiss taxman should not care much about me buying back the old or new shares. Let me know if you see any complications here?

Next step is to talk to tax office. I will let you know the outcome once I get feedback.

Best regards

8
Careful, this is likely to be seen as tax evasion by the eventual tax authority wanting to collect the cap gains taxes. Plus it will cost you in broker's fees, so that also needs to be part of your calculation. I'm not sure it will be worth it, but if it is something you are still serious about, I suggest contacting a tax professional skilled in international tax law.

Note that if you are in any way an "American person", the above conversation is academic; the Americans will still get their capital gains and the Swiss their wealth tax and they don't offset each other under the treaty.

In all honesty, you are probably better off selling what you can and then diversifying into something else. You can then continue to accrue the shares with your employer going forward.

*None of this constitutes actual advice as I am not a professional.

9
I would first have a look at this:

https://www.zh.ch/de/steuern-finanze...html#456858445

And then I would ask one of my tax colleagues for actual advice. Since the more pertinent question is likely whether you correctly declared the vesting RSUs for the purpose of your income tax (which may or may not have applied). PM me if you need a referral.