Voters retain tax perks for rich foreigners

Vaud has more foreign lump sum tax beneficiaries than any other canton

Voters have rejected an initiative calling for an end to tax breaks for wealthy foreigners nationwide. Some 59% of voters threw out the proposal. 

This content was published on December 11, 2014 minutes

Schaffhausen was the only canton out of 26 to support the initiative. Voters in cantons that are home to the highest number of foreign lump sum beneficiaries came out strongest in support of retaining the tax system. 

The initiative, brought by leftwing Alternative List political groups, asked voters to apply the coup de grace to the controversial lump sum tax system that had already been unilaterally scrapped by five cantons.

Swiss Finance Minister Eveline Widmer-Schlumpf pointed to the fact that 25 cantons had rejected the initiative, including four that had themselves banned lump sum tax. "This maintains the tradition of allowing cantons to decide their own fiscal regimes," she told a press conference.

Widmer-Schlumpf added that several other European countries currently offer competing special tax regimes for wealthy foreigners. She also reiterated new federal rules, that will come in to force at the start of 2016, that will tighten up qualification for lump sum tax status whilst increasing the levy.

Despite the loss Markus Bischoff, an Alternative List member of Canton Zurich's parliament, hailed the vote as a "tremendous result".

"We succeeded in bringing the issue of fair taxation to the national level," he told Swiss public television, SRF.

Andy Tschümperlin, a leading politician of the centre-left Social Democratic party that backed the aims of the initiative, said the fight against perceived tax injustice would carry on. "Constant dripping will eventually penetrate the stone," he told the Swiss News Agency.

Relief expressed

Canton Zug Finance Director Peter Hegglin, a critic of the initiative, believes the public voted no because they understood that tax measures help Switzerland to stay competitive internationally.

"I hope that we can finally close this particular chapter for a few years to come," he told Swiss public radio, SRF.

Maurice Tornay, finance director at Valais, betrayed how nervous he had been before the vote, saying that he was "pleasantly surprised" at the result. Tornay, like most other cantonal finance directors, hailed the vote as a victory for the sovereignty of cantons.

“Tax exiles”, such as rock star Phil Collins, pay a fixed annual sum according to their Swiss living expenses, which ignores overseas earnings or accumulated wealth. This levy typically amounts to between five and seven times the rental value of their property.

Supporters of the initiative argued that lump sum tax is anachronistic, opaque and panders to the wealthy. In addition, they claimed that it violates the spirit of the Swiss constitution that demands that tax should be levied according to an individual’s ability to pay.

There were also some mutterings that enforcement of conditions was too lax in some cases, allowing certain individuals to spend more time out of the country than is allowed or to slip some earnings made in Switzerland under the radar – which also violates the terms of the lump sum tax deal.

Rich foreigners concentrated

But opponents hit back in the build up to the vote, saying that rural cantons would be hit particularly hard, losing valuable tax receipts if a “yes” vote results in wealthy foreigners leaving the country.

Cantonal finance chiefs called on voters to respect the sovereignty of each canton to determine its own tax system. Cantons Vaud, Valais, Geneva and Ticino are home to the majority of Switzerland’s estimated 5,634  lump sum tax beneficiaries, raising some CHF700 million ($722 million) for tax coffers annually.

Cantons Zurich, Basel City, Basel Country, Schaffhausen and Appenzell Outer Rhodes have already voted separately to outlaw the system. St Gallen, Thurgau, Nidwalden, Bern and Lucerne opted instead to increase their levy and tighten eligibility conditions.

First applied by canton Valais in 1862, the lump sum tax system was tailor made for well-heeled English arrivals to avoid double taxation on their wealth that was often distributed among various countries.

But it started to come under serious attack just after the financial crisis of 2008, which sparked a backlash against the perceived cosy treatment of the wealthy to the detriment of ordinary income earners.

According to polls of voters’ intentions conducted a week before the vote, the initiative was well received by the public earlier in the year. But sentiment had turned against the initiative in the weeks leading up to the vote, indicating a significant swing towards the “no” camp.

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