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Opinion


No more tax privileges for millionaires


By Rudolf Strahm


By Rudolf Strahm

As the vote on the abolition of lump sum taxation approaches, the Swiss are becoming increasingly aware of the preferential tax regime foreign multi-millionaires enjoy in some parts of our country. At times, cantonal tax legislation can border on corruption.

Only super-rich foreign nationals who reside in Switzerland and are not engaged in any gainful activity are eligible for this lump sum taxation. With this preferential treatment, the privileged taxpayers only pay an agreed lump sum on the rent value of their properties. Their notional maximum taxable income is set at CHF400,000 ($415,000), even though their real earnings could be more to the tune of a few million. Foreigners who work and earn an income in Switzerland, however, are taxed like the Swiss.

Rudolf Strahm

The former politician and price regulator alternately writes with political geographer Michael Hermann and temporarily with the author Bruno Ziauddin. 

The cantons of Zurich, Schaffhausen, Basel Country, Basel City and Appenzell Outer Rhodes all abolished their lump sum taxation regime after conducting a vote at the ballot box. As a result, some of the lump sum taxpayers moved to other cantons – a clear indication of the absurdity of fiscal federalism. The nationwide vote dubbed “Stop the Tax Privileges for Millionaires” (abolishment of lump sum taxation) now aims at getting rid of this ridiculously high degree of cantonal provincialism across the country.

Even the centre-right has indicated some support for the referendum, which was launched by citizens’ initiatives and local parties. The fact that super-rich foreigners benefit from our costly, well-working infrastructure and high level of security without paying an appropriate contribution is simply scandalous. While a fair number of centre-right parliamentarians openly supported the initiative at first, they have since been summoned back.

The Swiss cabinet is rejecting this initiative, half-heartedly claiming it is an attack on federalism and the cantons’ fiscal sovereignty. Still, the fact that wealthy foreigners tend to move to other cantons for tax reasons serves as the best argument in favour of a nationwide abolition of the lump sum taxation regime.

Faulty argument

After lump sum taxation was abolished in canton Zurich, for example, Russian oligarch Viktor Vekselberg moved from Zurich to Zug, where he is only subject to lump sum taxation. In the 1990s, Vekselberg accumulated a fortune of around CHF10 billion and through his holdings now controls companies like Sulzer, Saurer, OC Oerlikon, Züblin and Schmolz + Bickenbach. Because his investments are managed through a conglomerate of foreign holdings and trusts, he is considered “economically inactive” in Zug, which means he is only taxed on expenditure (rental value).

In previous votes supporters argued that Switzerland could not do without the super-rich, as their departure would create a gaping financial hole in the national treasury. However, experience has shown that this argument is not really valid. As the Zurich-based newspaper Tages-Anzeiger has clearly demonstrated, none of the cantons that abolished lump sum taxation has suffered any apparent tax loss.

There are two reasons. First of all not all foreign nationals who were stripped of their tax privileges have moved out of their villas, and those who stayed have now turned into normal taxpayers chipping in much more than before. Second, the villas were re-occupied by other wealthy taxpayers once the lump-sum beneficiaries had left.

On May 6, Finance Minister Eveline Widmer-Schlumpf addressed the cabinet on this subject: “Based on the experiences in Basel Country and Zurich, it is very difficult to say whether there is a shortfall in revenues or not.”

In October she appeared as a guest on the satirical talkshow Giacobbo/Müller, where she actually admitted that “the lump sum taxation regime is not fair”. Hopefully the press in French-speaking Switzerland, which usually pampers the tax-privileged multi-millionaires and oil sheikhs living on the shores of Lake Geneva, will finally acknowledge the experience of the German-speaking cantons.

‘Monaco-isation’

Lump sum taxation leads to a “Monaco-isation” of those tax-privileged places, where villas are springing up left, right and centre; land and real-estate speculation is on a high and the construction industry is booming. No wonder real estate agents, tax consultants and construction companies are the main opponents of the anti-lump-sum tax campaign.

This Monaco-isation is only happening in a few places. In canton Bern, for example, 90% of the lump-sum taxpayers live in Saanenland – the district Gstaad belongs to – with the effect of almost eliminating the chances for the local population to buy building land or an apartment. In return the jet-set sponsor the Yehudi-Menuhin festival, yet enjoy another perk by getting cheaper tickets. However, this no way goes to prove the argument that they sponsor cultural activities to the tunes of several million Swiss francs all over the country.  

In Graubünden, the Monaco-isation mainly prevails in Pontresina and St Moritz; in Valais, it is evident in Verbier, Crans-Montana and Zermatt. In Vaud and Geneva, tax beneficiaries have triggered a boom in the villa construction industry at Lake Geneva. In the past 14 years Vaud finance director Pascal Broulis has granted more tax privileges to private and business people than all other cantons combined. So it is not surprising that he vehemently defends Vaud’s tax practices.

Lump taxation is actually a double whammy for our country. On the one hand it abuses tax federalism, on the other hand it violates the fundamental principle of tax equality enshrined in the constitution. It is basically a privilege for millionaires, which is hard to understand. Rich foreign nationals residing in Switzerland should contribute as much to the good infrastructure as any other normal taxpayer – no matter whether Swiss or not.

Opinion series

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(Translated from German by Billi Bierling)

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