Tax-news.com reports on the influx of wealthy foreigners seeking to benefit from Switzerland’s attractive tax laws for non-citizens. Driven in large part by competition among cantons, this system enables highly productive people to escape excessive taxation in other nations. High-tax European welfare states despise this policy, not surprisingly, but Swiss lawmakers understandably ignore these complaints. Indeed, as reported by the International Herald Tribune, one Swiss official even explained that there is no such thing as a “just” tax:
“It’s not a question of justice or injustice; there’s no just tax,” said Jean- Daniel Gerber, head of the Swiss State Secretariat for Economic Affairs.
Legendary French music and film superstar Johnny Hallyday and English pop star James Blunt are not unique in their desire to escape the high-tax regimes of their home countries. Switzerland has become a popular haunt for a variety of sports starts, rock stars and tycoons, notably Michael Schumacher, the former Formula One world champion, and Boris Becker, the Grand Slam tennis champion, rock star Phil Collins and Ingvar Kamprad, founder of the furniture chain Ikea.
Well over 3,500 wealthy foreigners have taken advantage of fiscal deals offered by Swiss cantons, paying an average of CHF75,000 each in tax on earnings of CHF300 million annually, according to Swissinfo. While individual deals vary, a typical agreement will see the individual pay tax on a multiple of the the value of their property or living expenses.
Swiss cantons are permitted an unusual amount of freedom from central government to set their own tax rates under the 2001 Tax Harmonisation Act, which has established a direct link between voters and tax policy and has helped to encourage tax competition within Switzerland for wealthy individuals and holding companies.
At least eighteen out of Switzerland’s 24 cantons planned to cut rates of taxation in 2006, led by Obwalden, which cut the corporate tax to 6.6% in January 2006, the lowest rate in Switzerland. Obwalden also cut tax for individuals earning over CHF300,000 by 1% to 2.35% and reduced property tax.
The system has also attracted criticism from the European Union. While Switzerland is not a member of the EU, it is party to a free trade agreement with Brussels dating back to 1972 and the European Commission has told Berne that it thinks certain aspects of Switzerland’s tax system are “incompatible” with this agreement and distort trade within the EU. To date, EC pressure on Switzerland to change its tax system has been firmly resisted by the Swiss government, with President Micheline Calmy-Rey telling the press whilst still Foreign Minister in December that there is “absolutely no room for negotiation,” regarding Swiss tax laws.