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Switzerland, foreign millionaires' „paradise,” may raise taxes

Switzerland, which has attracted millionaires from Ikea founder Ingvar Kamprad to ex-Formula One champion Michael Schumacher, may raise taxes on rich foreigners after French singer Johnny Hallyday's move to the Alpine nation sparked criticism on both sides of the Franco-Swiss border.

Foreigners with no local income pay tax according to their spending on rents or mortgages. Finance ministers from the country's 26 regions will meet today in Bern to discuss revising the system, said Kurt Stalder, who oversees the conference. If approved, taxation on 3,600 residents could more than double.
Hallyday, France's answer to Elvis Presley, set off a media and political storm last month when he announced he's moving to Gstaad, a Swiss ski resort, to reduce his tax bill. Arnaud Montebourg, a French Socialist lawmaker, last week called the Alpine country a „paradise for the financial aristocracy,” while Swiss Economics Minister Doris Leuthard said the system was unfair to her country's millionaires.
„Finance ministers won't discuss any numbers at the meeting but whether to pursue a possible revision,” Stalder, a financial administrator for the region of Lucerne, said in an interview on January 16. „There have been discussions about doubling the levy, but it could also be more or less.” Under current legislation, foreigners with no income in Switzerland need to pay at least 75,000 Swiss francs ($60,142) in taxes on average, corresponding to an annual income of about 250,000 francs. More than doubling the levy to match incomes of up to 600,000 francs is „more realistic,” according to Stalder.

Unlike residents with a Swiss paycheck, wealthy foreigners needn't declare their assets or income. They're taxed on an amount corresponding to their annual rent multiplied by five. Swiss passport holders can benefit from the same measure if they return after an absence of at least 10 years without working. While nations including Luxembourg, Ireland and Monaco also offer tax breaks to lure rich immigrants, Switzerland's federal system allows cantons to impose individual levies such as on residents' income and assets as well as companies' profits.
„It's not a question of justice or injustice; there's no just tax,” Jean-Daniel Gerber, head of the State Secretariat for Economic Affairs, said in an interview in Bern. „If wealthy people don't come to Switzerland, they go elsewhere.” Swiss taxes and social-insurance contributions amounted to 30% of GDP in 2005, compared with 35% in neighboring Germany and 44% in France, according to the Organization for Economic Cooperation and Development (OECD). The European average was 39%.

Hallyday moved to his new home in December following negotiations for a tax break with the region of Bern. To benefit from the measure, the singer needs to spend at least six months and a day each year at the ski resort, which is also home to former James Bond star Roger Moore. Others have already followed. British singer James Blunt plans to live in the Alpine resort of Verbier in Switzerland's French-speaking region, Patrick Messeiller, head of the village's tourism office told Le Matin newspaper this week.
The region's president, Christophe Dumoulin, plans to offer the singer the same tax breaks as Hallyday, the paper said. While cantons are filling their coffers with as much as 200 million francs a year from the tax, according to Stalder, the system with its roots in the 1940s meets increasing opposition. On January 9, Leuthard launched a Swiss debate by saying the current system was discriminatory, with wealthy natives including tennis star Roger Federer paying „10 times” more taxes. Montebourg stepped up the tone in an interview with Le Matin Dimanche by saying „the paradise for the financial aristocracy in Switzerland” was „hell for all working people.”

„We shouldn't offer exceptions for rich foreigners but the same treatment for everyone,” Hans-Juerg Fehr, president of the Social Democratic Party, said in an interview on January 15. „I don't think Switzerland would lose wealthy taxpayers if we increased the levy. It would still be very attractive.” Opinions remain divided. Pascal Broulis, finance minister of the canton of Vaud in Switzerland's French-speaking part with taxpayers including Schumacher, signaled he would only apply changes to newcomers. His colleague Georg Hess from the region of Schwyz told the newspaper NZZ am Sonntag he backs raising the levy.
„There's nothing to change,” Ueli Maurer, president of the People's Party, Switzerland's largest, said in an interview on January 15. „We can't compare residents generating their income abroad with someone living and earning in Switzerland.” Even if finance ministers agree to revamp the system, it could still take „several months” for a draft to be up for discussion, Stalder said. If rejected, the case will be closed. „The measure is very controversial among finance ministers,” he said. „If we say no, it's definitely not in our sense that the debate should continue in any way.” (Bloomberg)