Even though some Swiss cantons have abolished this type of tax “cap” – which is designed to encourage wealthy individuals to settle in a particular jurisdiction who might not otherwise – they say, there would not be enough votes for a Switzerland-wide end to the system.
This is because a numerical majority of all 26 cantons, and the majority of the voters living in all those cantons, would be required, they explain.
“In certain cantons, the forfeit system is unpopular,” said Robbin Davies, an adviser with the Spectrum IFA Group who is based in Rolle, near Lausanne.
“But in most of the others, there is considerable support for it, so it is unlikely to be amended.”
Ian Williams, of Relocate to Switzerland (UK), which helps UK citizens interested in moving to Switzerland, also expressed scepticism that a nationwide end to the negotiated single-sum tax system would occur anytime soon, noting that a vote earlier this year on the same subject failed to attract enough support.
Nevertheless, there is a sense that in some parts of Switzerland, at least, things probably will change – as they already have begun to, with a number of cantons, including Zurich, Schaffhausen and Appenzell, having ceased the practice of arranging tax deals with wealthy individuals keen to move in.
In September, the Swiss Parliament came out in favour of tighter regulations, and re-set the federal lump sum tax at seven times the rental value of the Swiss property being used by the tax exile in question as his residence, from five times.
The issue came up again last month, after an alliance of left-wing parties and trade unions announced they had collected the necessary 100,000 signatures to put the matter to a referendum.
An estimated 5,600 individuals are said to live in Switzerland under the forfeit system, under which they agree not to do any paid work in the country; to live at least six months and a day in Switzerland, and make it their principal residence; and to have not lived in Switzerland at all for the previous 10 years.
German-speaking, urban areas lead call for change
“Three-quarters of the signatures were collected in urban regions, particularly in the German-speaking part of Switzerland, while backing in the French- and Italian-speaking regions was weaker,” according to a report on the English language news website Swissinfo.ch, an arm of the Swiss Broadcasting Corp.
The article quoted Niklaus Scherr, of the Alternative List group, one of those campaigning against the tax cap scheme for wealthy people, as saying: “The system of lump sum taxes undermines tax justice and goes against legal equality for all citizens.”
Britons among the tax exiles
Sources say an unknown but sizeable contingent of Britons are among the wealthy individuals who have moved to Switzerland under the negotiated single-sum tax agreement system – or forfeit, as it is known in the French-speaking cantons.
Not all wealthy people who live in Switzerland have necessarily negotiated a single-sum tax deal, it should be noted; some are there simply because their taxes are lower than they would be elsewhere.
However they structure it, though, many wealthy celebrities make their homes in Switzerland today, with Phil Collins being perhaps the most famous Brit. A number of formerly London-based hedge fund managers have gone over as well, although it is said their families have sometimes struggles to adjust to the quieter lifestyle.
Other well-known Swiss residents include American singer Tina Turner and Swedish IKEA founder Ingvar Kamprad.
The idea of a tax cap system is said to date as far back as the 1860s in Switzerland, and has attracted generations of wealthy individuals from various countries ever since. One of the best known of the earliest tax refugees was Charlie Chaplin, who lived for decades near Lake Geneva.
Property price rise fuelling opposition
Williams, of Relocate to Switzerland (UK), says signature-gathering against the negotiated single-sum tax agreement system often occurs in an area in response to “increasing property prices” – for example, when a surge of wealthy Russians buying properties in a particular canton inflates prices, and puts homes there beyond the reach of its local residents.
“However, many cantons have voted to keep the tax, as they do very well from it, including Valais, Berne, Vaud etc.,” he adds.
“There are a number of canton parliaments facing similar votes, as sufficient signatures have been gathered, but few are likely to be successful.”
Gavin Pluck, European director for Guardian Wealth Management, who has been advising expatriates living in the Geneva area for the past nine years, believes that “even the voters lobbying for the abolishment of the “tax forfeit” in the name of equality “would surely have to recognise the economic downside of such a move”.
“The reason Switzerland remains such a wealthy country has, no doubt, much to do” with this and other tax advantages aimed at encouraging wealthy people to come and live in the country, he says, echoing a point often raised in Switzerland by those who argue that it should retain such perks.
Forcing the issue, Pluck continues, “could well tempt those rich individuals who create employment [by their presence here] to deploy to other countries, with the result that the voters wishing to abolish this ‘benefit’ could potentially end up shooting themselves in the foot".
