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Switzerland Adopts Flat Tax Resolution

by Ulrika Lomas,, Brussels

01 July 2013

During a recent sitting, Switzerland's Federal Council adopted a resolution rejecting the Swiss people's initiative calling for an end to the flat tax regime currently benefiting wealthy foreigners in the Confederation.

In its message, the Federal Council reiterates that the lump sum tax regime has already been revised and adopted – quite recently – by the Swiss Federal Chambers, namely in autumn 2012. This revision was a "balanced compromise" between tax equity and economic competitiveness, the Federal Council argues, warning that this compromise must not now be called into question again so soon afterwards.

Defending its decision, the Federal Council underscores that the foreigners' flat tax regime is a political instrument of great importance for the Swiss economy. Given that the tax is vital for both the fiscal revenues and the economy of some cantons in Switzerland, it is imperative to maintain the regime, the Federal Council stresses. Concluding, the Federal Council rejects the idea that further changes need to be made to the system, or that the regime needs to be abolished.

Switzerland's controversial flat tax regime is based on the cost of living, rather than an individual's wealth or income. According to figures published by Switzerland's Conference of Cantonal Finance Directors (FDK), 5,634 wealthy foreigners were subject to the flat tax in 2012, compared to 5,445 in 2010. The product of the tax totalled CHF695m (USD717m) last year, up 4 percent from 2010 (CHF668m).

The regime was toughened in September 2012, to gain acceptance for the increasingly unpopular system. Consequently, from 2016, the tax base for calculating direct federal and cantonal tax will be seven times the cost of living, compared with five times as is currently the case. In addition, as regards direct federal tax, a minimal taxable income of CHF400,000 will apply. The Swiss cantons will be required to determine their own minimum taxable amount.

Despite the adopted changes, in November 2012 the Swiss people's initiative "end to tax privileges for millionaires" succeeded in gaining the necessary 100,000 signatures to trigger a referendum on plans to abolish the system nationwide, namely at federal, cantonal, and communal level. The referendum is likely to be held in two years' time.

TAGS: Finance | tax | Switzerland | tax breaks | individual income tax

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