Swiss mull capping tax competition

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Tax competition, a key element of Switzerland's appeal to the world's wealthiest, comes under scrutiny on Sunday, when the country will decide if a minimum tax rate should be introduced across the board.

Individual cantons now have free rein over how much they want to tax their inhabitants, but under the proposal introduced by the Socialist Party, a minimum of 22 percent in taxes would be levied over a certain level of income.

The proposal has sparked an emotional debate in the country, where some industrialists such as lift magnate Alfred Schindler have threatened to pack up and leave if it were adopted.

Schindler, who is chief executive of the eponymous company, argued that the move "puts everyone's prosperity in danger, from simple employees to top earners" and that he no longer felt welcomed in his home country.

But proponents of the initiative believe that the tax competition is fueling a race to the bottom with cantons giving multi-millionaires ever more tax rebates in order to attract them as residents.

Proponents have therefore forced a referendum under the country's unique direct democracy system, for the population to decide if income of 250,000 francs and above should be levied a minimum of 22 percent in taxes.

"The referendum aims for more tax justice: first between high and low income and assets, because the superrich will no longer be privileged compared to the rest of the population," said the Socialist Party.

"And secondly between the cantons -- because the tax differences would not widen," it added.

The new rules will affect many small cantons, where many of the country's wealthiest, such as Schindler, live.

In fact, some of these little cantons -- notably Zug, Schwyz and Obwalden, are in the top 10 most competitive tax-wise in Europe, rivalled only by eastern European states and the British isles, said accounting group KPMG.

"Small cantons are often disadvantaged on the level of the companies and infrastructure and so they compensate this with tax competitiveness," explained Joerg Walker, tax specialist at KPMG Switzerland.

Among them is canton Schwyz's Wollerau commune. Perched on a slope, the commune offers not just a stunning view over Zurich lake, it also boasts one of the most competitive tax rates in Switzerland.

Its attractiveness is borne out by its illustrous list of inhabitants -- tennis player Roger Federer, British Formula One racer Lewis Hamilton and former UBS chairman Marcel Ospel.

After all, a married couple without children making an annual revenue of about 400,000 Swiss francs (about 300,000 euros), would pay 110,000 Swiss francs of tax if they are domiciled in Zurich. In Wollerau, they would pay 44 percent less taxes.

"Canton Schywz was a very poor canton 50 years ago," said the mayor Ueli Metzger, explaining how tax competition has helped the town to prosper.

He warned that if the proposal is accepted Sunday, it would hurt the commune with a population of 7,000 as the departure of the rich would mean more taxes for the rest.

But others say that having the rich move in is not without problems.

"In the canton, the middle and low income are finding themselves under greater pressure," said Martin Reichlin, who heads the Socialist Party in canton Schwyz.

"Rents have increased so much in communes that practise tax competitiveness that many people have been forced to move out," he said.

Reichlin also shrugged off Schindler's threat, pointing out that while areas close to Zurich have ended their tax deals for the rich in February 2009, it has not led to an exodus of the richest.

Latest polls by Swiss public television and radio indicate that the vote would be close, with 46 percent currently in favour and 39 percent against, while 15 percent were undecided.

© 2010 AFP

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