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Swiss Tax Deals Lure the Superrich, but Are They Fair?

By DOREEN CARVAJAL

New York Times
Published: January 14, 2007

Correction Appended

PARIS, Jan. 13 ‹ In the dark of winter, the French rock ını roll icon Johnny
Hallyday has abandoned France to settle in a snow-dusted mountain chalet,
joining a scattered flock of superrich tax refugees in serene Switzerland.

Numbering about 3,700, according to Swiss statistics, these millionaire and
billionaire exiles are variously coveted and resented in Switzerland, where
local governments are competing in what critics scorn as a fierce race to
the bottom to lure wealthy foreigners with individually negotiated tax
breaks.

³Iım sick of paying, thatıs all,² Mr. Hallyday, 63, said in a rebellious
outburst to the celebrity magazine Paris Match, which devoted eight pages to
his departure. ³I believe that after all the work I have done over nearly 50
years, my family should be able to live in some serenity. But 70 percent of
everything I earn goes to taxes.²

The notion of a French symbol decamping to a newly renovated refuge in the
town of Gstaad had an incendiary effect on French politics, prompting
President Jacques Chirac to express restrained regrets about the rockerıs
actions. But Mr. Hallydayıs departure also highlighted a simmering debate in
Switzerland, where tax deals for wealthy expatriates provoke criticism from
political parties on the center-left.

³For our party this is a question of justice,² said Mathias Manz, a senior
official of the Swiss Social Democratic Party, which failed to persuade the
Swiss Parliament to halt the deal-making in a vote on the issue in 2005. ³We
believe that this kind of system is not transparent or fair and that,
ultimately, it will undermine the tax morals of other people who arenıt
getting the benefits.²

Switzerlandıs 26 cantons wield enormous power over their own taxation
systems, setting their own tax levels with local citizens weighing in at the
ballot box. Their autonomy has allowed the flourishing of a discreet,
letıs-make-a-deal tax system for rich foreigners who, unlike the Swiss
themselves, are allowed to negotiate lump-sum tax agreements.

The immigrants negotiate an annual payment amounting to five times the
monthly rental value of their Swiss homes. The deal has proved to be an
irresistible call to the rich, drawing Ikeaıs billionaire founder, Ingvar
Kamprad, and close behind him in net worth, Viktor Vekselberg, a Russian
aluminum and petroleum magnate and collector of jewel-studded Fabergé eggs.
Mr. Kamprad, an 80-year-old Swede fabled for his frugality and vintage
Volvo, lives near Lausanne.

But along with corporate titans, Switzerland is also home to an assortment
of celebrities, including the German racing champion Michael Schumacher, the
cyclist Jan Ullrich, also of Germany, and the pop singers Phil Collins of
England and Tina Turner of the United States.

It is such a Mecca for French athletes that when Mr. Hallyday started
feeling political heat for his departure, the French tennis star Amélie
Mauresmo defended Swiss tax migration from her Geneva redoubt in an
interview with the Swiss daily newspaper Le Matin: ³To live in Geneva is a
lifestyle choice along with financial reasons. Leading a normal existence in
Paris is much more complicated.²

Negotiating the Swiss tax system can also be complicated, but cantons are
eager to court the superrich. And so a thriving cottage industry of lawyers
and advisers has evolved to shepherd potential new residents by negotiating
individual agreements, known as forfaits, with canton authorities.

³We have seen an increase in wealthier people applying for forfaits,² said
Stephanie Jarrett, a tax lawyer with Baker & McKenzie in Geneva. ³Itıs now
allowed everywhere, and in some cantons you can get a better deal than
others. The rates are much higher in Geneva than in other cantons where they
really need the income, and so they offer much lower rates.²

Aside from tax advantages, she said, wealthy foreigners are attracted
because the nation is considered safe, a particularly appealing factor for
Latin Americans yearning to escape kidnapping threats in their own
countries.

On the other hand, some expatriates find it difficult to adapt to an insular
and placid culture, and the availability of luxury housing in high-demand
areas like Geneva is limited. Le Matin issued a blunt public warning to Mr.
Hallyday about the perils of tranquillity, urging him to stay in France
unless he was ³mad about skiing, walking and solitude.²

Cantons are eager to draw wealthy foreigners, who offer a quick way of
raising revenues when they are facing reductions in public spending. Local
authorities have also been slashing corporate and personal rates for Swiss
residents in a race that the association of canton finance chiefs has
criticized as excessive.

Anetta Bundi, a reporter with the German-language Zurich newspaper
Tages-Anzeiger who has covered the issue, said the chief argument in favor
of tax perks for foreigners is that wealthy residents will help the economy
as their riches trickle down to local businesses.

³There are a lot of people who think this is not just and should be
abolished,² she said, but the fear is that if such steps were taken they
would simply cause the flight of a highly mobile elite to other receptive
places like Belgium.

Canton authorities are so eager to roll out the welcome mat that it
sometimes draws unwelcome attention in a society that prides itself on
discretion.

Last year, the local authorities in the canton of Graubünden announced an
investigation of lump-sum tax benefits granted to Flora Bartolini, the
mother-in-law of former Prime Minister Silvio Berlusconi of Italy. The
controversy involved the issuance of a Swiss residency permit in 2004 to Ms.
Bartolini although she had not lived in the house, an imposing former bank,
while it was being renovated.

Mr. Schumacherıs tax deal in Lucerne was thwarted when people discovered
that the canton had offered him special rates, exclusive landing rights for
his private jet and support for finding an appropriate piece of property.
But now he lives near Lake Geneva, a region that has drawn other wealthy
racing drivers like Fernando Alonso and Alain Prost.

Joseph Zisyadis, a member of the Swiss Parliament and a longtime opponent of
the tax deals, calls the system a return to the Middle Ages where ³the
richer you are, the less you contribute.²

³When Johnny Hallyday comes to Switzerland, he loves the tranquillity and
the security,² Mr. Zisyadis said. ³He loves that the country is clean. All
of this costs money. And who pays for this if the rich donıt pay for this?²

Correction: January 26, 2007

Because of an editing error, an article in some copies on Jan. 14 about
wealthy foreigners moving to Switzerland and negotiating tax breaks
incorrectly described a formula used for determining a lump sum tax payment.
The immigrants negotiate an annual payment based on five times the monthly
rental value of their Swiss homes. They do not make a one-time payment based
on the value of their Swiss homes

http://www.nytimes.com/2007/01/14/world/europe/14swiss.html