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Swiss give super-rich expats tax reprieve

Delighted: French rock star Johnny Hallyday, who has vowed to spend "six months and one day a year" in Gstaad Keystone

Switzerland's wealthy foreign tax exiles have won a six-month reprieve from any toughening of cosy fiscal deals that have been criticised at home and abroad.

Swiss cantons, which met on Friday to debate a possible doubling of the tax rate, opted instead for a study comparing their systems for super-rich expatriates with those applied in other havens, including Luxembourg and Monaco.

The meeting of financial authorities followed a recent outcry in both France and Switzerland after ageing French rock star Johnny Hallyday set up house in the exclusive resort of Gstaad to escape heavier French taxes.

Leftist politicians in Switzerland seized on the case to launch fresh attacks on the controversial lump-sum tax deals which can leave foreigners paying less than Swiss earning the same.

Entertainers including musicians Phil Collins, Tina Turner and actress Isabelle Adjani, along with sports stars Michael Schumacher and Amélie Mauresmo, are among many stars who live in Switzerland.

The deal is currently available to 3,600 foreigners who pay an average of SFr75,000 ($60,000) each in tax, earning Switzerland SFr300 million a year.

Economics Minister Doris Leuthard had criticised as “discriminatory” a system which, despite similar earnings, allows Hallyday to pay only one-tenth as much tax as Swiss world tennis number one Roger Federer.

According to the Swiss tabloid newspaper Blick, both earn around SFr10 million but Federer pays SFr3 million in tax compared with Hallyday’s SFr300,000.

“Fiscal manna”

Deals vary widely among the 26 cantons, but the basic formula is to calculate a minimum of five times the annual rent or the rental value of the expatriate’s home and his or her living expenses. That amount is taxed at an average rate of 30 per cent.

“One shouldn’t forget that these people pay the same amount of tax each year, which is not negligible, regardless of their revenues. It’s fiscal manna for the Swiss, and these people are also big spenders,” said one lawyer with star clients.

British pop singer James Blunt and former United Nations secretary-general Kofi Annan are in the process of setting up domicile in the alpine state, according to local media reports.

Switzerland, renowned for leaving the rich and famous in peace, has attracted stars for decades, including Richard Burton, Audrey Hepburn and Charlie Chaplin, all buried in adopted villages.

Hallyday made clear his reason for defecting was financial, complaining that 70 per cent of his global income was going to taxes in France. He vowed to spend “six months and one day a year” in Gstaad, the minimum required under such deals.

But in an editorial, the Lausanne-based newspaper Le Matin warned that Hallyday might be bored to tears unless he learns the local Swiss-German dialect and becomes “crazy about skiing, walking and solitude”.

swissinfo with agencies

Swiss cantons are free to set their own tax rates within the framework of the Tax Harmonisation Act, brought into force in 2001.

Selected cantonal tax rates from a KPMG report published on November 1, 2006: Obwalden 13.1%, Schwyz 15.6%, Zug 16.4%, Zurich 21.3%, Graubünden 29.1%.

Article 23.iii of the 1972 Free Trade Agreement states that: “any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods” is “incompatible with the proper functioning of the Agreement”.

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR