France and Switzerland play hot potato over taxes

Finance Minister Karin Keller-Sutter could be forced to reopen negotiations with France on a double taxation agreement on inheritance. Keystone / Anthony Anex

The battle between heirs taxed by both Switzerland and France has entered the Swiss political debate. A motion has been put forth calling on the Federal Council to negotiate a new convention with Paris to avoid such cases. France, however, does not seem ready to enter into discussions.

“We are victims of the disagreements between Switzerland and France,” says Joël Roux. The retired 68-year-old from Lyon and his 73-year-old brother Patrick Roux are upset with governments of both countries.

The story of the Roux brothers, revealed by the Tribune de Genève newspaper, is that of an inheritance that turns into a poisoned gift. In December 2018, their Swiss cousin died in a retirement home in Geneva. He left them €125,000 (CHF121,000), which he held in an account in France. “We were geographically distant, but close in our hearts. He was happy to be able to leave us this legacy,” says Joël Roux. But that was without taking into account the appetites of the tax authorities.

As the cousin died on Swiss territory, Switzerland taxed the legacy at 55%, corresponding to a sum of CHF67,173 (€68,831). Initially, the deal seemed to have been completed by the book. However, there was a nasty surprise a year later, when the French authorities taxed the heirs at 60%, a total of €75,088. In total, the inheritance was taxed at 115%. Instead of receiving €125,000, the French brothers had to pay CHF19,000.

Joël Roux from France, was taxed 115% on an inheritance of a Swiss cousin. ldd

Switzerland and France let previous law lapse

How could these heirs have been taxed twice? The root of the problem dates back to 2011. At that time, France said it wanted to terminate the agreement established in 1953 between France and Switzerland, aimed at preventing the double taxation of inheritance tax. France said the agreement no longer corresponded to the provisions of French law. Switzerland, on the other hand, said it wanted to revise the text rather than bury it. The two countries therefore began negotiations and signed a new agreement in 2013. However, the Swiss parliament refused to endorse it, deeming it too unfavourable. Consequently, France then denounced the agreement.

Since January 1, 2015, Switzerland and France have no longer had a double taxation agreement on inheritance. Each country therefore applies its own inheritance law, thus opening up the proverbial can of worms with cases of double taxation like that of Joël and Patrick Roux.

Their case is far from an isolated one: all Swiss or French citizens living in Switzerland who have heirs in France could also face this problem. The nearly 204,000 Swiss living in France and their families are also regularly affected by the problem of double taxation on inheritance, as confirmed by the Organisation of the Swiss Abroad (OSA).

Pressure on the Swiss Federal Council

“We cannot be content with this situation,” says Vincent Maitre, a Swiss parliamentarian. He points out that one of the main principles of international tax law is that citizens should not be taxed twice. The Geneva politician has therefore put forth a proposal calling on the Federal Council to resume negotiations with France in order to re-establish a double taxation agreement on inheritance.

However, Maitre acknowledges that Switzerland is not in a strong negotiating position. “France does not want to renegotiate an agreement, as representatives of the French government have told me,” he says. He believes that re-opening the issue would be an excellent way of improve chilly relations between the two countries, which have yet to emerge from an ice age following Switzerland’s refusal to buy French fighter jets. “The Federal Council should use it as a diplomatic tool to restore relations,” he says.

Be that as it may, the government is refusing to get involved. “During the negotiations that led to the 2013 agreement, France made concessions to Switzerland on several points with the aim to avoid the double taxation on inheritance tax. It is not certain that France is prepared to make such concessions again,” writes the Federal Council in its response to Vincent Maitre’s motion. If France agrees to re-open negotiations, “the resulting solution would probably be identical to the one rejected in 2013, or even less favourable”.

Yet the pressure on the government is strong: the motion is co-signed by representatives of the main political parties. There is therefore a good chance that parliament will accept it against the advice of the Federal Council, which would force Finance Minister Karin Keller-Sutter to attempt new negotiations with Paris.

France and Switzerland shift responsibility

In the absence of a breakthrough on the political horizon, Joël and Patrick Roux are moving heaven and earth to resolve their case, but without success. “The French tax authorities are washing their hands of it and telling me it’s Switzerland’s fault and vice versa,” sighs Joël Roux. The pensioner has even written a letter to the 577 members of the Federal Assembly. But to no avail.

To try and win his case, the Frenchman has finally taken on legal counsel. There could be some good news for the Roux brothers. The lawyer sees a solution. “We are going to challenge the constitutionality of French law, which does not provide sufficient protection against double taxation,” explains Loïc Soubeyran-Viotto. However, the procedure is likely to take several years.

The situation is difficult for Joël Roux to manage. Exhausted by the administrative procedures, he has suffered a nervous breakdown. “My brother and I feel that France and Switzerland have stolen from a dead man,” he says.