The rain lashing Geneva’s chic Rue du Rhone couldn’t drown out calls by Swiss campaigners for the abolition of a 152-year-old tax break for rich foreigners.
Sporting top hats, fur coats and sunglasses, members of the Socialist Party lampooned a system that allows foreigners to duck income tax by negotiating lump-sum payments with Swiss cantons. “No Tax For The Rich,” and “We Want Our Tax Haven,” said the placards carried by a group of 40 people handing out fake 1,000 Swiss-franc notes to shoppers last Saturday.
The disinterest of diners entering Cafe du Centre on the adjacent Place du Molard is echoed in the latest poll that shows the protesters may be losing the fight before a Nov. 30 national referendum on the tax regime known as the forfait. Bankers and the government warn abolition will crimp revenues, cut jobs and reduce Switzerland’s appeal as rich foreigners flee Geneva and other French-speaking cantons that are home to most forfaits.
“Geneva has for decades been one of the most attractive international centers for wealthy individuals to settle and that’s largely down to the forfait,” said Justine Markovitz, head of the Swiss offices of Withers LLP, a law firm advising forfait holders. “Voting away the system would prompt many of them to leave and could damage the local economy.”
Four-time Formula 1 champion Sebastian Vettel and Russian billionaire Viktor Vekselberg are among more than 5,000 people benefiting from a forfait, which the Socialist Party says can lower tax rates to less than 1 percent. Britta Roeske, a spokeswoman for Vettel, declined to comment on his tax situation. Vekselberg, whose net worth is $14.4 billion, according to Bloomberg’s Billionaire Index, has a forfait, said Rolf Schatzmann, a spokesman for his company, Renova Group.
Latest Poll
A Nov. 19 poll by gfs.bern showed 46 percent of voters are against abolishing the forfait, with 42 percent in favor and 12 percent undecided. The poll of 1,412 people has a margin of error of plus or minus 2.7 percentage points. That reverses an Oct. 24 poll by gfs.bern showing 48 percent in favor of abolition and 36 percent against.
The highest numbers of forfaits are in the cantons of western Switzerland, including more than 700 in Geneva and 1,400 in neighboring Vaud. Valais, which includes the ski resorts of Verbier and Zermatt, has 1,300, according to the latest federal government figures from 2012.
Tax Receipts
The tax plan was introduced in 1862 by Vaud to get wealthy British residents to pay for local services. The number of foreigners tapping the system nationwide rose 36 percent to 5,634 in the six years to 2012, according to cantonal figures. Revenue from the expenditure-based levy climbed 77 percent to 695 million francs ($725 million) over that period.
The departure of rich immigrants will cut Geneva’s tax receipts by 169 million francs, according to the city’s Chamber of Commerce, Industry and Services. That assumes all the canton’s forfaits will leave, and includes 54 million francs raised from inheritance tax and charitable donations.
That scenario is “crazy,” said Romain de Sainte Marie, president of the Geneva Socialist Party, who wants wealthy foreigners to join other residents in paying the canton’s top income tax rate of more than 45 percent, plus a wealth tax of almost 1 percent of total assets.
When Zurich became the first of five Swiss cantons to abolish the tax break in 2009, 97 of its 201 forfait holders left. Those who remained in Zurich paid 30 million francs of tax in 2010, 6.3 percent less than the revenue raised from the lump- sum payment in 2008, according to cantonal figures.
Forfait Benefits
The benefits of the forfait typically increase with an individual’s wealth, said Peter Krummenacher, a lawyer at Henley & Partners in Zurich, who gives relocation and tax advice.
“For those sitting on 100 million francs or half a billion francs in the higher tax cantons such as Geneva and Vaud, abolishing the forfait would really make a difference,” said Krummenacher. “Those in central Switzerland with 10 million francs might not see a big change.”
The departure of foreign billionaires doesn’t concern de Sainte Marie, whose Socialist Party collected more than 100,000 signatures to trigger the national vote on the tax break.
“People want to abolish the forfait and put an end to this unjust and unequal system,” he said. “I’m sure even if certain forfait holders leave, others will come to occupy their luxury mansions.”
Life Quality
Geneva has 74,300 millionaires, the greatest concentration of any city, according to Johannesburg-based New World Wealth.
The tax system turned Geneva into a city of luxury boutiques and unaffordable housing at a time when the government is asking people to “tighten their belts to prop up the public finances,” said de Sainte Marie.
“A few people may leave but we won’t cry about them,” according to Sylvain Thevoz, a Geneva City Counsellor for the Socialist Party, who said Switzerland’s security, infrastructure and quality of life will ensure it retains its appeal. “People realize they are just playing on fears and blackmailing.”
The Swiss electorate will also vote on Nov. 30 on a proposal to curb immigration and another initiative that would require the country’s central bank to hold 20 percent of its assets in gold.
The gfs.bern poll shows a majority of voters oppose the immigration measure, while they are also against the gold proposition by a margin of 47 percent to 38 percent in favor.
Direct Democracy
Switzerland’s system of direct democracy lets citizens help frame laws from street petitions even if the federal government or national parliament advises against a proposal. Voters defied the government by banning the construction of mosque minarets in 2009 and backing a cap on immigration on Feb. 9.
Both the federal and Geneva governments oppose abolishing the forfait, a tax on imputed expenditure that is calculated at not less than five times the annual rental value of the individual’s home in Switzerland. The federal government plans to introduce a minimum taxable income of 400,000 francs from 2017, while Geneva authorities will increase that to 600,000 francs to appease cantonal opponents of the tax break.
Forfait holders don’t have to declare their worldwide income or assets and, unlike other Swiss residents, they don’t pay tax on income from securities’ holdings. Still, they create 22,000 jobs across Switzerland, including 3,000 in Geneva, according to the city’s chamber of commerce.
Those individuals will consider relocating to the U.K., Belgium and Portugal, which also offer tax breaks to foreign millionaires, said Bernard Droux, a managing partner at Cie. Lombard Odier SCA, Geneva’s oldest bank. The city’s 120 banks will lose clients who benefit from the forfait, he said.
“Clients feel they may no longer be welcome in Switzerland,” said Droux, whose bank had 115 billion francs of private-client assets at the end of June. “These people are very mobile. The U.K. is expecting them and hopes that we are going to continue to shoot ourselves in the foot.”
