FT: Rich 'non-doms' face £ 30,000 fee

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 ¹n¹ 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.

³I¹m sick of paying, that¹s 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 rocker¹s actions. But Mr. Hallyday¹s 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 aren¹t getting the benefits.²

Switzerland¹s 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, let¹s-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 Ikea¹s 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. ³It¹s 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. Schumacher¹s 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 don¹t 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