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Swiss Federal Council Rejects Inheritance Tax Initiative

by Ulrika Lomas, Tax-News.com, Brussels

19 December 2013


The Swiss Federal Council has recommended that the popular initiative calling for a reform of inheritance tax in the Confederation be rejected.

The popular initiative demanded that an inheritance and gift tax should be introduced at federal level. Under the proposal, two-thirds of the product of the tax would flow to the country's social security and pension fund (AHV), while the remaining one-third would be allocated to the Swiss cantons.

Under current law the Swiss cantons and communes have exclusive competency for levying their own taxes on inheritances and donations. The initiative seeks to deprive the cantons and communes of these taxing rights and revenues. The Federal Council is therefore opposed to the plans, arguing that it is a grave attack on the substance and fiscal sovereignty of the cantons.

Furthermore, the Federal Council emphasized that even though spouses and descendants are currently exempt from inheritance and gift tax in nearly all cantons, revenues flowing from the levy are so significant that the cantons could not and would not wish to renounce this vital income.

In 1999, cantonal and communal revenue generated by the levy amounted to a total of CHF1.515bn (USD1.7bn). Although the product of the tax has declined in subsequent years in a number of cantons in Switzerland, following their decision to exempt descendants from the charge, the levy once again yielded a considerable CHF974m in 2010.

The Federal Council made clear that the measure would lead to a dramatic reduction in cantonal income. One-third of the income from a national tax would simply not suffice to compensate for the cantonal revenue shortfall, particularly if tax breaks are accorded to businesses and farmers in the Confederation, as envisaged under the plans, the Federal Council added.

Concluding, the Federal Council underscored its belief that ensuring the future financing of the AHV system should take place within the framework of a planned pensions 2020 social security reform, namely via a 2 percent increase in the rate of value-added tax (VAT).

Commenting, Swiss Trade Association SGV usam maintained that the Federal Council's message was completely inadequate. SGV usam urged the Federal Council to thoroughly and seriously examine the actual constitutionality of the initiative and to swiftly deliver a corresponding ruling.

SGV usam warned back in July that the plans would have devastating consequences for SMEs and for family businesses in Switzerland, if adopted. It warned at the time that many SMEs would face huge problems when transferring a family business from one generation to the next, jeopardizing the very future of some companies.

Given that the required number of valid signatures was finally collected in March of this year (110,205), a referendum is now due to take place.

TAGS: inheritance tax | tax | business | pensions | value added tax (VAT) | law | tax rates | social security | gift tax | Switzerland | tax breaks

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