Lewis Hamilton to join wealthy tax exiles

Keystone

British motor racing star Lewis Hamilton is set to join the growing number of Formula 1 drivers and other rich foreigners to settle in Switzerland.

Hamilton said he wants to escape the incessant attention he attracts in his home country, but he could also save millions in taxes. However, not everyone is comfortable with Switzerland’s tax haven status.

Hamilton shot to fame this year when he finished runner-up in the Formula 1 championship in his first season behind the wheel.

But he announced earlier this week that the resulting intrusion into his everyday life led him to decide to move to Switzerland. Hamilton’s lawyer confirmed on Friday that the driver had been in canton Geneva for around a month.

“Over there [Switzerland] people don’t come up to you; they leave you alone and give you space,” the 22-year-old told the BBC. “I can’t go to the cinema [in England]. I go to the bathroom in a petrol station and people come in for autographs.”

Hamilton has already been beaten to the Alpine nation by a host of other Formula 1 stars including current champion Kimi Raikkonen, Fernando Alonso and former driver Michael Schumacher. Music stars and business giants also add to the 4,000 or so foreigners with special tax breaks.

Swiss cantons are jostling to sign up wealthy foreigners with a special lump sum arrangement that calculates taxable income at just five times the rental value of the individual’s property.

“Divisive” system

One international accountancy firm estimates that Hamilton could save £4 million (SFr9.67 million) a year on basic salary alone, based on projected earnings and British tax rates.

But this break has recently been criticised as divisive and unfair on the Swiss, who must pay taxes on their full income. Earlier this year Economics Minister Doris Leuthard questioned why Swiss tennis champion Roger Federer must pay full taxes that some foreigners escape.

French President Nicolas Sarkozy poured scorn on a decision by Johnny Hallyday, a French rock singer, to move to Switzerland just before the presidential elections.

The Swiss centre-left Social Democratic Party has been campaigning for years to have the privileges scrapped and plans to force a national referendum on the issue. The movement scored a victory in June when the Swiss Federal Court struck down canton Obwalden’s degressive tax system as unconstitutional.

“We are against tax breaks for wealthy foreigners because it is unfair on normal Swiss people, who must pay taxes on their full earnings,” Social Democrat spokeswoman Claudine Godat told swissinfo.

“At the very least we want to see more transparency in the system that allows different cantons to negotiate their own deals.”

“Fine decision”

However, François Micheloud of foreign relocation firm Micheloud & Co said Hamilton had made a “fine decision”.

“With all the other F1 drivers here it is more difficult not to take this decision. Celebrities in Switzerland can lead a normal life and go shopping or enjoy a meal without being harassed, which is quite a privilege,” he said.

“Tax is important but it does not explain everything. Monaco and Andorra also offer tax advantages, but they cannot offer the same quality of life as here.”

swissinfo, Matthew Allen with agencies

Key facts

The number of foreign tax exiles in Switzerland reached 4,175 last year up from 2,394 in 2003, according to a survey by consultancy group KPMG.
KPMG estimates that Swiss tax coffers benefited to the tune of up to SFr600 million in 2004, a figure that probably nudged SFr1 billion last year also taking into account social security payments and tax revenues on interest earned in Swiss banks.
KPMG also revealed that wealthy foreigners in canton Valais in western Switzerland contribute 5.2 per cent of the total tax collection despite making up only 0.6 per cent of the local population.
In six of Switzerland’s 26 cantons, rich foreigners contributed at least two per cent to the local tax purse in 2004, the study concluded.

In brief

In 1920 Vaud became the first canton to introduce separate measures to tax foreigners living, but not working, in Switzerland.

Fourteen years later the federal authorities also recognised as a separate tax category people who came to Switzerland for health reasons and not to work.

Lump sum taxation is regulated by the Tax Harmonisation Act, brought into force in 2001 to compel cantons to follow the same guidelines when setting individual rates.

Beneficiaries of this system must live at least six months and one day in the canton, have their principal residence in Switzerland or have been absent from their home country for at least ten years and not be employed within Switzerland.