The fear of entrepreneurs about the Young Socialists’ tax initiative has noticeably decreased. However, a seminar for those affected also showed the creativity in circumvention maneuvers.
That’s what you call a major success. The submission of a popular initiative was enough to trigger effects that would otherwise only be possible after the people had accepted it. And this despite the fact that most observers rate the initiative’s chances at the ballot box as slim. The Young Socialists managed this feat with their popular initiative for an inheritance tax of 50 percent for assets over 50 million francs.
This tax is to take effect immediately after it is approved at the ballot box – and thus effectively retroactively. It would take up to three years for the laws or regulations to be adopted for implementation. The initiative also calls for “the prevention of tax avoidance, particularly with regard to moving away from Switzerland.”
Strong pre-effect
Because of these demands, the initiative had made those potentially affected sweat long before the vote. Owners of medium and large family businesses found themselves under particular pressure: a tax of around 50 percent of total assets could make it extremely difficult or even impossible to pass the business on to the next generation.
This spring, advisers had already publicly stated that most of those affected were considering evasive maneuvers – including moving away before the vote. If they moved away after the vote, they could be subject to an exit tax equal to the inheritance tax owed, effectively locking those affected in the country. Individuals affected, such as IT entrepreneur Ruedi Noser and industrialist Peter Spuhler, were open about their intentions to avoid the tax. Spuhler spoke of moving away, for example to Austria or Italy. However, many were reluctant to go public, because it would not win them popularity prizes.
Sword of Damocles is gone
The unusual pre-repercussions of the initiative alarmed the Federal Council. Last week, it used a parliamentary inquiry to calm people down. The core message: If the initiative were implemented, it would reject an exit tax. And the implementation must in any case be in accordance with international law. This means that restrictions or even a ban on moving away are out of the question.
A few days later, Finance Minister Karin Keller-Sutter said it even more clearly in an interview with “Blick”: The Federal Council had made it clear “that a so-called exit tax is out of the question. In other words, no one should be taxed who would move abroad if the initiative were accepted.”
This is not a full guarantee, but it has significantly improved the mood among those affected and their advisors – even if it does not solve the problem of deterring potential newcomers. This was evident on Wednesday evening at a seminar in Zurich, which was primarily intended for advisors of those affected. The invitation was given by the trade magazine “Steuer-Revue” and its publisher. Tax advisors, lawyers and entrepreneurs were present, among others. One of the main tenors of the evening was that the Federal Council has defused the situation – those affected do not have to run away before the ballot box is even put up.
A second main message: Despite the initiative’s relatively low chances of success at the ballot box, most of those potentially affected are preparing for the scenario of the initiative’s success – because the consequences are so serious that the matter cannot be ignored. But would those affected really move abroad if the initiative were successful?
Four consultants interviewed gave the impression that most would actually leave. One spoke of 80 percent, another of 90 percent. A third explained that a certain type of medium-sized business owner who is still heavily involved in operations and has a more domestically oriented business might have to stay in Switzerland. “I would have to sell my company,” said one affected entrepreneur.
Austria beckons
According to another tax expert interviewed, who works for a billionaire, his employer would definitely try to avoid an inheritance tax of 50 percent. One option discussed is to park the company in a foundation, but the most likely option is to move away.
Austria was a frequently mentioned destination for those wanting to move away: The country has no inheritance tax, no wealth tax and also a double taxation agreement with Switzerland that largely limits the taxation of inheritances to the last place of residence of the testator. However, if you move away from Austria, any capital gains you have accrued are subject to an income tax of 27.5 percent, even without selling.
Ultimately, you can’t look into people’s heads. Statements about possible departures can also be tactical. Given the drastic consequences of the initiative, evasive maneuvers on a large scale are likely – even if they don’t necessarily have to involve departures in all cases.
Tip for voting day
The detour via a foundation is a problematic alternative. According to several specialists, this is generally only accepted for tax purposes in Switzerland if the original owner of the assets in question relinquishes control of these assets. Anyone who does not trust the Federal Council’s tranquilizer and therefore wants to protect themselves before the vote could possibly avoid an “unnecessary” move by using a foundation.
Stefan Kuhn, head of tax at the consulting firm KPMG Switzerland, presented a solution. The person concerned transfers his assets to a self-controlled foundation or trust before the vote. This has no tax consequences; the corresponding assets would still be credited to the person concerned.
However, if the initiative appears to be accepted on voting Sunday, the person concerned could hand over control of the foundation to his children before the official verdict is given. The assets would then be attributed to the children for tax purposes. This would avoid inheritance tax before the initiative comes into force. If, however, the initiative is rejected, the person concerned could liquidate the foundation again without any tax consequences.
Another option being discussed is to donate one’s own company to one’s children, while at the same time retaining the donor’s usufruct rights (here: the company management). The question is whether such a structure would work well. In any case, tax specialists, as usual, are not lacking in creativity.
Underestimated concern?
It’s not about small stuff. According to a rough estimate, around 2,000 taxpayers could have assets of over 50 million francs; together, these taxpayers hold perhaps around a fifth of all taxed assets in Switzerland. In the canton of Nidwalden, which would be particularly exposed, the people affected contribute a total of around 20 percent of the total income and wealth taxes of natural persons, according to tax administrator Raphael Hemmerle.
In addition, people with foreign residence could also be affected, says tax lawyer Stefan Oesterhelt. For example, if such a person with total global assets of 200 million francs has a property in Switzerland worth 20 million francs, Swiss inheritance tax could already be due.
According to the lawyer, this would be the case if the exemption amount of the popular initiative of 50 million francs were distributed proportionally between the individual assets. This would correspond to common Swiss practice. This would mean that only 10 percent of the total exemption amount (i.e. 5 million) would be credited to the Swiss property – 10 percent because the Swiss property only accounts for 10 percent of the total assets. In this scenario, a value of 15 million francs of the Swiss property would be subject to inheritance tax.
According to Oesterhelt, if the initiative were implemented in this way, all affected foreign taxpayers would sell their Swiss property. This issue has reportedly not yet been an issue for the federal government.
Despite all the criticism, the Juso initiative has something honest about it, if you ignore the cloak of earmarking tax revenues for climate policy. We know what it is about: the initiators do not want rich people in the country – even if that could cost the other residents a lot. The people will probably be able to say in about 2026 whether they see it that way too.