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A conference of Swiss cantons has reportedly decided to delay a decision as to whether wealthy foreign celebrities and business people should pay more tax when deciding to take up Swiss residency.
According to a report by Swissinfo, officials from Swiss cantons met last week to discuss the possibility of doubling tax rates for wealthy foreign immigrants, but instead decided to examine the proposal more closely by comparing the Swiss cantonal tax system with preferential tax regimes in other low tax jurisdictions such as Luxembourg and Monaco.
The meeting was held against a backdrop of increasing hostility towards the Swiss tax system from some European politicians and media outlets, sparked by reports that French singer Johnny Hallyday and British pop star James Blunt had decided to take advantage of attractive tax deals for wealthy individuals being offered by certain Swiss cantons.
Reports in the French and Swiss media suggested that Hallyday, dubbed the 'French Elvis' had grown weary of paying France's punitive taxes and has decided to set up home in the Swiss canton of Gstaad where, according to the Swiss tabloid Blick, he will pay CHF300,000 (US$242,000) on his reported earnings of about CHF10 million, provided that he spends more than six months and one day per year there. In France, Hallyday complains that he pays about 70% of his income to the government in taxes.
Authorities in the Swiss resort of Verbier have also confirmed local reports that James Blunt, the former British army captain who earned a reported GBP5 million (US$9.94 million) last year with a multi-platinum album, had registered with the tax office there.
However, Hallyday and 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 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.
However, there has been growing unease about the nature of the Swiss tax system from within the country itself recently. Left-leaning Swiss politicians have been warning about the consequences of a "race to the bottom" regarding cantonal tax rates, and the consequences this will have for the provision of public services, for some time. And even the government's own Economics Minister, Doris Leuthard, has acknowledged the unfairness towards domestic taxpayers inherent in the system, labelling it, according to Swissinfo, as "discriminatory."
This is highlighted by Blick's report that Swiss tennis player Roger Federer, currently ranked number one in the world, pays CHF3 million in tax in his home country - ten times more than Hallyday on a similar level of income.A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp
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