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Switzerland prepares for vote on lump-sum taxation

Monday, 6 October, 2014

The Swiss Federal Council has summarily rejected campaigners' demands to abolish the regime of forfait (lump-sum) tax concession for wealthy foreign residents.

The campaign has been under way for some years, and has received sufficient support to force a national referendum on the issue. This referendum will take place on 30 November.

Forfait taxation is based on the individual's actual annual living expenses (principally housing costs) rather than on their income and assets. It is only available in certain cantons, and then only to foreign residents who are not 'gainfully employed' in Switzerland. In fact, less than one in a thousand Swiss taxpayers are taxed in this way, though they are naturally concentrated in certain areas.

Some 76 per cent of the 5,634 people using the system live in the four cantons of Vaud, Valais, Geneva, and Ticino. Most of the 2,000 wealthy French individuals using forfait live in Vaud, much to the disquiet of the French government, which has withdrawn all treaty benefits from Swiss residents who pay forfait tax.

The Federal Council is well aware that many Swiss citizens regard the system as unfairly generous to wealthy foreigners, and it has in fact been abolished in various cantons. However, the Federal Council considers it essential to Switzerland's appeal as a domicile for wealthy individuals from other countries, for whom, it says, there is fierce global competition. Other countries offer special arrangements to persuade such people to relocate there, and forfait taxation is just the Swiss equivalent, it says.

'If people who were previously subject to expenditure-based taxation moved away, it could primarily create problems for communes in structurally disadvantaged regions and it would thus be difficult to make up for job losses and tax losses', says the government.

Reports claim that half of the 200 foreigners using forfait in Zurich's so-called 'Gold Coast' left when the canton scrapped the system in 2009, although the CHF12.2 million lost from tax receipts was recouped from the remaining wealthy.

The federal government is thus hoping that the decision will continue to be left to the cantonal governments. However, in an attempt to placate the opposition, it is introducing a new and more stringent eligibility criterion from 1 January 2016.

Meanwhile the campaign for abolition – which calls itself Stop The Tax Privileges For Millionaires – is stepping up its rhetoric in preparation for the vote. If they win, the federal government will have to enact the relevant laws within three years.