GENEVA Next 30 November, the Swiss will vote both on a federal and cantonal basis whether their country should continue to provide special tax privileges to foreign millionaires. The arrangement allows wealthy expatriates to declare a fiscal ‘forfait’ (tax package) based on their lifestyles and not the actual amount of their fortunes.
On average, their annual ‘wealth tax’ is estimated at CHF 130,000, five times more than the average Swiss pays. In return, these foreign millionaires agree not to work in Switzerland. Just over 5,600 individuals, including well know sports personalities, entertainers and business people, are believed to be benefitting from this arrangement. This is nearly twice as many as in 1999, when only 3,106 wealthy foreigners enjoyed the privilege.
A vote against this would effectively bring an end to Switzerland as a tax haven for expatriate millionaires. But it might also threaten the CHF 695 million they bring into Swiss cantonal coffers every year. Of this, Vaud receives CHF 208 million and Geneva CHF 156 million. It could also threaten 22,000 or more jobs. Furthermore, financial analysts maintain, it could severely undermine Lake Geneva’s luxury real estate market, particularly the many sumptuous villas and chateaux owned by EU nationals, Russians, Arabs, Americans and others located along its shores.
More than two thirds of them, such as French crooner Charles Aznavour or German racing driver Michael Schumacher, are resident in the cantons of Geneva, Vaud, Valais, Ticino and Graubunden. The tax privilege is only granted to foreigners who have not been living or operating a business in Switzerland for ten years prior to their request. One reason why French tennis player, Jo-Wilfried Tsonga, a beneficiary of the ‘forfait’, did not play in the recent Basel Tennis Open was because this would constitute ‘work’. Some, however, such as singer Tina Turner, who renounced her US nationality on becoming Swiss, have opted to forgo the benefit arguing that Switzerland was a fantastic place to live, regardless.
The Canton of Vaud first introduced the ‘forfait’ in 1862 as a means of better controlling its wealthy foreigners, at the time, primarily British and, to a lesser extent, Americans. After that, other cantons gradually implemented a similar tax regime.
According to the Tribune de Genève, real estate magnate Bernard Nicod, who has reportedly provided services to at least 100 of the 1,450 tax beneficiaries in Vaud, insisted that “this is pure madness.” He added: “No one is demanding this of the Swiss. It would have a devastating psychological impact abroad.” As it is, primarily because of pressure by the European Union and United States on the Swiss to reveal financial information on foreign residents in the country, some already have picked up and left because of current incertitude.
Relocation Switzerland, a Lake Geneva-based consulting firm, further notes that many high-end tourist resorts, such as Gstaad and St Moritz, where some of these individuals live, would lose their dynamic means. Roughly 90 per cent of Canton Bern’s 211 millionaire beneficiaries live in the Commune of Saane, where Gstaad is located. At the same time, other countries, such as Great Britain, which also offer highly attractive fiscal breaks to resident foreigners, would benefit. “Many would leave for these places,” said Toni Ammon, fiscal expert for the consultancy group that helps foreigners relocate to Switzerland.
As Philippe Kenel, a fiscal lawyer, and other financial specialists point out, it would prove both difficult and costly for the Swiss to try and tax the assets of such individuals outside the country. Much, too, would depend on the economic situation worldwide. With the current system, Kenel maintains, “Switzerland is assured of pulling in nearly CHF 700 million a year regardless of the world economy.”
The Swiss Left, but also at least one right-wing party, see it differently. “Is it acceptable that some should pay more, others less,” asked Christian Levrat, President of Switzerland’s Socialist Party. Critics also point out that everyone should pay their fair share in order to live in the country, particularly foreigners who are benefitting from what Switzerland has to offer.
When the Canton of Zurich abolished its tax arrangement in 2009, roughly half (97 out of 201) of its millionaire beneficiaries migrated abroad or to other cantons. Russian billionaire Viktor Vekeselberg moved to Zug. According to the Zurich authorities, however, the Canton did not lose out financially given that those foreigners who remained paid more taxes. More recently, Basel Town and Country, Appenzell-Ausser-Rhoden and Schaffhausen also did away with the arrangement. This means that the Suisse romande cantons are among the ones the most affected.
The question is whether such millionaires would be prepared to leave Switzerland for more tempting fiscal bastions elsewhere, such as the Cayman Islands or Bermuda, but also the EU itself where some countries offer highly attractive tax benefits. However, many might find it difficult to move to Luxembourg or the UK and give up a standard of living that would prove hard to emulate, such as alpine skiing at their doorstep, top-rate international schools for their children and extremely easy travel facilities such as Geneva and Zurich airports. Equally important, particularly for residents with insecurity and corruption in their own countries, such as Russia or the Middle East, Switzerland offers good protection.
Many, too, like the anonymity and discretion of living in Switzerland, where people scarcely look twice if passing a celebrity in the streets. As one Lake Geneva relocation specialist, who assists wealthy foreigners to establish themselves here, noted: “We Swiss have a tradition of letting people be who they are. That’s why so many well-known figures like to settle down here. No one bothers them.”
While the Swiss government recognizes that the tax benefit may not come across as entirely fair or infringes on the principles of fiscal equity, it also acknowledges that ‘fortfait’ does offer a significant source of income for certain cantons. According to the Federal Tax Administration (AFC) in Bern, wealthy expatriates spend over CHF 3 billion every year in Switzerland. This includes vital jobs for both Swiss and foreigners resident in the country, such as chauffeurs, bodyguards, nannies, cooks, gardeners, interior decorators, caterers and architects.
One foreign millionaire, who owns two houses in Switzerland, maintains an equally large staff in each of them with a total of 12 employees, all of them Swiss, except the cook. Another, a Russian oligarch with residences both in Switzerland and neighbouring France, has no fewer than four Swiss security guards on his payroll, primarily because they know the system. He also travels with his own entourage of stout ex-Spetnaz (Russian special forces) body guards and assistants. According to Stefano Albinati, head of Albinati Aeronautics, a business charter company based in Meyrin with over 100 employees at Geneva Airport, a decision to rescind the tax benefit would prove ‘disastrous’. At least two of the 20-odd jets he manages would without doubt leave.
Some local communes are also reluctant to see their wealthy expatriates leave. As one town council member in Vaud pointed out, such individuals often provide “substantial contributions” to communities, including the hiring of local personnel, such as artisans and caterers. Many, too, donate heavily to Swiss charities and cultural foundations.
Despite the fiscal advantages, the Bern government does not make it easy for wealthy foreigners to establish themselves. Russian businessmen who consider it too dangerous because of kidnapping or even murder to operate back home are only given temporary visas. Nor are their children, even if brought up and schooled in Switzerland, necessarily granted permits to remain.
Some Swiss parliamentarians and cantons are now seeking to resolve the matter in their own way. They are asking wealthy foreigners to pay more. Even if the November vote is rejected, foreign millionaires will have to pay more. From 2016 onwards, they will be expected to pay up to seven times the annual rental value of their properties – and possibly other wealth such as cars and yachts – resulting in a minimum CHF 400,000 a year tax bill. As part of its own cantonal vote, Geneva is even asking CHF 600,000, basically an across-the-board increase of 40 per cent. For many wealthy expatriates, however, this would still be peanuts given the benefits of living in Switzerland.
Edward Girardet, Managing Editor of Le News