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What does lump sum taxation really offer Switzerland?

The jet set will not all leave Switzerland if lump sum taxation is abolished, claim supporters of the initiative Keystone

According to opponents of the November 30 vote, abolishing lump sum taxation for wealthy foreigners will lead to a substantial loss of revenue and thousands of jobs. The initiative’s supporters view such claims as “grotesque” that fail to stand up to detailed scrutiny.


“The debate on the lump sum tax is one of heart versus head, in other words, financial ethics against economic attractiveness,” says Marius Brülhart, economics professor at the University of Lausanne.  “In reality, if we were to only consider the wallet, I am not sure that lump sum tax is such a good deal for our country.” The economist is critical of the sombre forecasts presented by advocates of the tax, if a “yes” vote were to prevail on November 30. 

The forecasts in question are those presented by the Governmental Conference of Alpine Cantons, which together with Geneva and Vaud, represent the main cantons affected by the initiative known as “Stop tax breaks for millionaires (abolition of lump sum taxation)”.  In case of a “yes” vote, it is predicted that more than 22,000 jobs would be threatened in areas such as construction, tourism, services and leisure. The alpine cantons group estimates lump sum taxpayers’ annual spending power at approximately CHF3 billion ($3.1 billion), which does not include the CHF470 million in contributions towards cultural, social and charitable activities. 

These estimates are largely based on a 2009 study by two economists, Charles B. Blankart of the University of Lausanne and Simon Margraf of the Humboldt University in Berlin. This was confirmed to swissinfo.ch by the president of the alpine cantons group and Graubünden senator Mario Cavigelli. The problem is that the study was not commissioned by the Federal Tax Administration, as the alpine canton group communiqué suggests but by Plus-Value Suisse, a private lobbying group that openly campaigns for maintaining lump sum taxation. 

Geneva-based newspaper Le Temps, questions the “disputed” figures. It cites the small number of lump sum taxpayers consulted for the study – only 126 out of 5,000 such taxpayers were surveyed – and casts doubt on the CHF470 million worth of donations from these wealthy foreigners, which the study’s authors themselves downplay. 

Ski resorts at risk

In addition to these contested economic consequences, tax losses, would be in the order of “at least one billion francs, if we consider the CHF695 million in lump sum taxes, along with loss of value added tax (VAT) and inheritance tax”, explains tax lawyer Philippe Kenel, a vehement opponent of the ban on lump sum taxation. 

In the affected communes, business owners and authorities express their concerns. Eloi Rossier, president of the Bagnes region, which hosts the famous Verbier ski resort and its 240 lump sum taxpayers, frets, “Every year, the tax on spending yields CHF8 to 9 million to the commune, in other words 17% of our income. This amount is indispensable for investing in our sports infrastructure and to compete on an international level with other resorts, such as Kitzbühl, Vail, Val d’Isère or Cortina d’Ampezzo. If we abolish this tax, we would not be able to play in the same league.” 

Beyond just the tax revenue, an entire business model will be threatened with extinction, according to Elio Rossier. Investments in construction would stop abruptly and major cultural events like the Verbier Festival, which depends in part on private donations, would have to be scaled down. 

Doubts within the Federal Administration

All of these forecasts assume that lump sum taxpayers would leave Switzerland in case of a “yes” vote on November 30. However, this assumption is far from certain, as demonstrated by Zurich, where half the lump sum taxpayers stayed put after the system was voted out in the canton, in 2009. Higher taxation for those who stayed behind almost compensated for the loss in tax revenues from those who left. 

In a 2011 article published in La Vie Economique, two economists at the Federal Tax Administration, Bruno Jeitziner and Mario Morger, explain that estimates regarding threatened jobs, “are full of major unknowns and should be taken as upper limits”. 

The economists considered it “probable” that all of the affected persons would not leave Switzerland if tax on spending were abolished.  “One can therefore expect the number of jobs that would disappear to be lower than the numbers mentioned.” 

“Grotesque” figures

Within the ranks of Alternative Left movement which came up with the initiative, a decision was taken to focus not only on the issue of fiscal justice, but to challenge opponents’ “grotesque” figures, explains Frédéric Charpie, the national coordinator of the campaign for the abolition of lump sum taxation. 

“In Zurich, villas that were evacuated by lump sum taxpayers, who often moved to neighbouring cantons, were then occupied by new millionaires, who paid more taxes. We even saw job creation, as the sale of a property often required major renovation work,” says Charpie.

“Tourist resorts would have less to worry about than the canton of Zurich, as wealthy foreigners are more attached to their lifestyle in the mountains than in urban areas.” 

Charpie puts into perspective the gains that lump sum taxpayers contribute to their adopted residence. “These 5,634 rich foreigners who benefit from the lump sum tax in Switzerland collectively contribute CHF695 million every year. In contrast, the 55,000 individuals with more than CHF3 million and who pay regular taxes, contribute a total of CHF72.3 billion per year. The lump sum tax therefore only represents 0.96% of tax income from wealthy people in our country”. 

The system of lump sum taxation is based on the lifestyle and spending habits of the taxpayer in Switzerland and not on his/her actual revenue or fortune. It applies only to foreigners who do not exercise a revenue-generating activity in Switzerland. It is also available to sports professionals and artists. 

In 2012, parliament decided to tighten the conditions for eligibility for lump sum taxation to come into force next year. The minimal level of spending taken into account in terms of cantonal taxation must now be seven times the rent or rental value of the abode and only people with an annual revenue of at least CHF400,000 ($419,000) can now benefit from this tax break with respect to federal direct taxation. 

Concretely, a foreigner who purchases an apartment in Switzerland which has a monthly rental value of CHF5,000 will be taxed at the same rate as other taxpayers, on a revenue of CHF420,000 (5,000 x 12 x 7). Added to that is other spending, such as on cars or private jets. The base used for wealth tax is a minimum of ten times more than the amount declared, in this case, CHF4.2 million. 

(Translated from French by Paula Dupraz-Dubuis)

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