Swiss Refuse to Give Up Millionaires’ Tax BreaksGiles Broom
Swiss voters decided to hold on to a 152-year-old tax break for rich foreigners that’s in force in Geneva and other wealthy areas, a measure the government says is helpful to the country’s economy.
Fifty-nine percent voted against the initiative, sponsored by the Socialist Party, that would have abolished the system allowing foreigners to duck income and wealth taxes by negotiating lump-sum payments with Swiss cantons, the government said on its website. Two other initiatives on the Swiss National Bank’s gold holdings and immigration limits also were rejected.
The Swiss government said abolishing the regime known as the “forfait” would have cut tax receipts and led to job losses as wealthy exiles left Geneva and other French-speaking cantons that are home to most beneficiaries. Six of the nation’s 26 cantons, including Zurich, have abolished the forfait since 2008 as an economic slowdown triggered a backlash against the lower tax rates paid by Formula 1 drivers, Russian billionaires and other rich foreigners.
“I have five clients who were ready to leave if this initiative had passed,” Jean-Blaise Eckert, a lawyer with Lenz & Staehelin in Geneva, said in a telephone interview. “We have been exchanging messages today and we are all relieved. People have voted to preserve Switzerland’s allure.”
Four of Switzerland’s five governing parties opposed abolishing the tax break, originally created in 1862 to encourage British expatriates to contribute to local services. More than 5,600 wealthy foreign residents paid 695 million francs ($720 million) through the forfait in 2012, according to government figures.
The highest numbers of forfaits are in the cantons of western Switzerland, including more than 700 in Geneva and 1,400 in neighboring Vaud. Valais, which includes the ski resorts of Verbier and Zermatt, has 1,300, according to the figures. Four-time Formula 1 champion Sebastian Vettel and Russian billionaire Viktor Vekselberg are among those benefiting from a forfait.
When Zurich became the first canton to end the tax break in 2009, 97 of its 201 forfait holders left. Those who remained in Zurich paid 30 million Swiss francs of tax in 2010, 6.3 percent less than the revenue raised from the lump-sum payment in 2008, cantonal figures show.
“The majority has voted quite clearly and it looks like this issue is off the table,” Marius Bruelhart, a professor of economics at the University of Lausanne, said in a telephone interview today. “Beneficiaries of the forfait regime can probably feel secure with their tax status.”
The system turned Geneva into a city of luxury boutiques and unaffordable housing at a time when the government is asking Swiss people to contribute more to the public finances, the local Socialist Party said before the vote.
“I’m disappointed,” Romain de Sainte Marie, president of the Geneva Socialist Party, said today, adding that he’s still thinking of ways to demand more tax from wealthy foreigners living in Switzerland, to help bolster the canton’s income.
Geneva has 74,300 millionaires, the greatest concentration of any city, according to Johannesburg-based New World Wealth.
Forfaits in Geneva paid 169 million francs in taxes in 2012, according to the city’s Chamber of Commerce, Industry and Services. That included 54 million francs raised from inheritance tax and charitable donations.
They also create 3,000 jobs in the canton, with a total of 22,000 across Switzerland, according to the chamber of commerce.
“It’s a relief for western Switzerland, where many French emigres, among others, settled to reduce their tax bills and avoid the prying eyes of the French state,” said Mark Summers, head of Switzerland for Charles Russell Speechlys, a law firm with offices in Geneva and Zurich. “Switzerland is facing tough competition from other international low-tax centers.”
The forfait refers to a tax on imputed expenditure that is usually calculated at not less than five times the annual rental value of the individual’s home in Switzerland. Forfait holders don’t have to declare their worldwide income or assets and, unlike other Swiss residents, they don’t pay tax on income from securities’ holdings.
Voter participation was 49 percent, according to the Swiss government.