Second Pillar and Cross-Border Workers: Reimbursements Suspended in Ticino

Context

At a Glance

• Starting in 2024, the Canton of Ticino will no longer allow refunds
• In Switzerland, the withholding tax is around 7%
• In Italy, LPP assets are taxed at 5%
• Other cantons also deny reimbursement

Key Facts

• What → assets in the Swiss second pillar (LPP)
• Who → cross-border workers residing in Italy
• Switzerland → withholding tax averaging around 7%
• Italy → 5% tax rate
• Change → shift in interpretation starting in 2024
• Authority → Withholding Tax Office of the Canton of Ticino
• Update → OCST

Starting in 2024, the Canton of Ticino has changed its interpretation of refund requests submitted by cross-border workers residing in Italy. This change affects those who decide to withdraw their Swiss second pillar—that is, the LPP—as a lump sum.

Previous practice and the change

Until a few years ago, the mechanism described was straightforward. At the time of the lump-sum payment, Switzerland applied a withholding tax. The rate depended on the canton in which the pension fund was based and, according to the OCST, averaged around 7%.

Cross-border workers residing in Italy were then required to pay a 5% Italian tax on that same lump-sum payment. Once they provided proof of payment of the tax in Italy, they could file a claim with Switzerland to obtain a refund of the withholding tax. This mechanism was based on the Double Taxation Agreement between Italy and Switzerland, which also governs the treatment of pensions and benefits related to a previous employment relationship.

The turning point came in 2024. The Withholding Tax Office of the Canton of Ticino changed its interpretation. According to the Ticino tax authority, the Italian 5% substitute tax constitutes a special form of taxation and, in this case, does not allow the taxpayer to apply the provisions of the Double Taxation Convention as was previously the case.

The practical consequence is the rejection of refund requests filed in Ticino. Following the Canton of Ticino, other cantons are also denying refunds. For those receiving LPP capital, the result may therefore be the payment of both the Swiss withholding tax and the 5% Italian tax. This change takes effect after the Italian payment has been made and concerns the recovery of the Swiss withholding tax. The issue remains unresolved from a legal standpoint and may have consequences for workers and former cross-border commuters. The OCST has published a specific update on the matter. When reviewing form secondo pilastro LPP, the relevant entry to check is therefore the refund request, not just the tax payment.

Operational details

What Changes for Those Receiving the Capital

The practical issue is not the existence of the two taxes described, but the process that previously allowed for a refund of the Swiss tax. The process consisted of payment in Switzerland, a 5% Italian tax, and a subsequent refund request. With the new interpretation by the Canton of Ticino, the third step no longer produces the same result. The source describes the risk of double taxation on the same capital as follows.

Before-and-After Comparison

The table helps clarify the impact for cross-border workers residing in Italy. Those who decide to withdraw their LPP capital can no longer rely on the old procedure as a guarantee of reimbursement. Previously, having paid the 5% in Italy was a prerequisite for requesting a Swiss refund; today, at least in Ticino, that proof does not prevent the request from being rejected.

The 7% figure must also be interpreted correctly. It is the average rate indicated by the OCST for Swiss withholding tax, not a uniform rate for everyone: the source specifies that the rate depends on the canton in which the pension fund is based. Comparing individual situations therefore requires keeping the pension fund’s canton, the Italian payment, and the outcome of the Swiss claim separate.

The issue also affects former cross-border workers, not just those still working across the border. The analysis discusses possible consequences for workers and former cross-border workers and leaves the legal framework open. It is therefore not possible to present the refund as definitively ruled out in every situation, nor can the previous practice be taken for granted. To understand the tax implications, readers can refer to calcolatore fiscale while reviewing this case, taking care not to confuse the tax calculation with the outcome of the refund request.

Useful planning tools

To estimate your pension strategy, use the pension planner and the pillar 3 simulator.

Key points

Procedure for Those Who Need to Verify the Refund

To turn this matter into a concrete verification process, the cross-border worker can follow the sequence described below, keeping the tax-related steps separate from the refund request.

1. Identify the Pension Fund and the Pension Plan

The first step is to determine whether the transaction involves a lump-sum withdrawal from the Swiss second pillar, the LPP. Next, identify the canton where the pension fund is located: the withholding tax rate depends on this factor, and the OCST indicates that it averages around 7%.

2. Separate the Two Tax Payments

At the time of payment, Switzerland applies withholding tax. The lump-sum payment must then be subject to a 5% tax in Italy. The required documentation is proof that the Italian tax has been paid. This proof links the Italian payment to the refund request described in the previous procedure.

3. Submit the request and review the outcome

After proving payment in Italy, the previous procedure involved submitting a request to Switzerland for a withholding tax refund. However, those filing a claim related to the Canton of Ticino must take into account the change in interpretation effective in 2024: the Ticino Withholding Tax Office has begun rejecting these requests. The analysis also indicates that other cantons are denying refunds as well. The outcome should therefore not be assumed solely on the basis of having paid the 5% in Italy.

4. Monitor Legal Developments

The legal basis cited is the Double Taxation Convention between Italy and Switzerland, though the matter remains unresolved from a legal standpoint. The OCST has published a specific update: this is the recommended resource for tracking developments in this matter. Those potentially affected include cross-border workers residing in Italy, as well as current and former cross-border workers who are receiving their LPP retirement benefits.

To compare the impact of the tax items mentioned in the article, consult the guide on LPP e rendita and use calcolatore fiscale.

Source: tio.ch