More rich foreigners lured by tax breaks

Keystone

Ultra-rich foreigners are flocking to Switzerland in increasing numbers to take advantage of controversial lump sum tax arrangements offered by many cantons.

The number of tax exiles reached 4,175 last year up from 2,394 in 2003, according to a survey by consultancy group KPMG. The policy has attracted critics both within and outside the country.

Earlier this year a spokesman for French Socialist presidential candidate Ségolène Royal accused Switzerland of “banditry” after Johnny Hallyday, a French rock star, announced he would switch residency for tax purposes.

Hallyday will join a growing list of multi-millionaire celebrities and business leaders moving to Switzerland, including musicians Tina Turner and Phil Collins, former Formula One driver Michael Schumacher and Ikea founder Ingvar Kamprad.

Swiss tabloid newspaper Blick questioned why Hallyday would pay SFr300,000 ($246,000) in taxes by special arrangement while Swiss tennis ace Roger Federer has to pay SFr3 million – despite both earning around SFr10 million.

Such rich foreigners avoid paying tax on their total wealth and usually contribute a lump sum based on five times the rental value of their Swiss property instead.

However, KPMG partner Patrick Burgy disputed the popular belief that wealthy foreigners do not contribute to Swiss society.

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 accounting for social security payments and tax revenues on interest earned in Swiss banks.

Challenging perceptions

“The general perception is that lump sum tax payers have too good a deal and are not paying their fair share,” Burgy told swissinfo.

“But our calculations show that these people are paying the same amount on average as the average Swiss tax payer who earns more than SFr200,000.

“What people also forget is that any income they derive from foreign sources, such as a concert staged in Japan, is also subject to withholding tax in that country. So the lump sum payment in Switzerland is often only half the story.”

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.

But this argument does not wash with the centre-left Social Democrat Party, which is campaigning to bring a halt to the practice.

“We are against lump sum taxation because it is not just and is in breach of the constitution. According to the constitution all citizens should be treated equally and taxed according to their ability to pay,” Social Democrat spokeswoman Claudine Godat told swissinfo.

“We are not sure if the figures in the [KPMG] report are accurate [regarding the numbers of lump sum payers]. But if they are correct, then it is indeed worrying.”

swissinfo, Matthew Allen

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 10 years and not be employed within Switzerland.

Key facts

Cantons with the most rich foreigners paying lump sum tax in 2006 according to KPMG phone poll (official 2003 figures in brackets).

Vaud 1,100 (260)
Valais 860 (647)
Geneva 600 (555)
Ticino 477 (410)
Graubünden 250 (168)
Zurich 150 (38)