Tax Break

Who said tax is boring?

Is the clock ticking for Switzerland?

Class?

Class?

Towards the end of 2010, in one of his last interviews, John F Kennedy’s iconic speechwriter, Ted Sorensen, shared a previously unpublicized titbit concerning the 1960 Presidential Election. At 3am on Election Night, Richard Nixon gave a not-exactly- concession speech (he officially conceded the following afternoon). Watching the event on TV, Kennedy turned to Sorensen and said, with a touch of  sarcasm: “That’s Nixon. No Class”.

Ever since I learnt to think independently (which is a lot more recently than I care to admit) the word “Class” has given me trouble. It is no coincidence that the only acceptable opposite of “Class” is “No Class” often modified by one of several expletives. Despite gargantuan efforts by modern lexicographers to come up with a good definition, the Shorter OED lists 7 homonyms for the word, none of which have anything to do with what Kennedy was talking about.

Part of the problem has been that the term has  been a moving target for so long. While a dinner jacketed Sean Connery’s request for a certain drink “shaken not stirred” may have been the height of class (aka elegance) 50 years ago, nowadays every western 17-year-old lying face down in the street can reel off a catalogue of cocktails and chasers.

However, one thing that all tax practitioners would agree  is that , whatever “Class” is, the Swiss have it.

She was a Grimaldi

She was a Grimaldi

Throughout the 20th century and into the 21st, Switzerland has been the ultimate tax haven for the discerning company or individual. The Rolls Royce Phantom II of the international tax avoidance (NEVER evasion) industry. Not for them the vulgarity of Netherland Antilles or British Virgin Islands. While Monaco may offer the attractions of the Grand Prix, Monte Carlo’s Casino and the glamorous House of Grimaldi, Switzerland offers supreme natural beauty, elegant manners and the ever-so sacred discretion of professionals you would trust in a harem.

Even as it was  mauled by the Americans for aiding and abetting tax dodgers, the country kept its head high and suffered no apparent reputational damage (after all, that is what everyone knows they have always done. It was the Americans who came over as brash). However, recently it has started to look as if paradise could be lost, not because of external pressures (which have been there forever) but, rather, internal ones. The Swiss (or to be more precise 103,000 of them who signed a recent petition) have discovered they have a social conscience – and, with that, there (potentially) goes the tax haven neighbourhood.

Riled by the cosy tax arrangements of such class acts as  Phil “A groovy kind of love”  Collins and Tina “I’m your private dancer” Turner, a socialist  group is forcing a referendum on Switzerland’s Federal lump-sum taxation regime. This move, itself, comes in the wake of the discontinuance of the regime by several Cantons.

Switzerland has been operating some form of lump-sum taxation for 150 years. The basic idea is that foreign High Net Worth individuals wanting to establish a tax residency of convenience in Switzerland and not planning working or doing business there, can negotiate a level of tax ostensibly based on their cost of living. This has traditionally replaced income tax and wealth tax.

Recognizing the winds of change in public attitudes the Federal Government issued a draft law in late September amending the existing regime. The reaction was a petition organized by a group of lefties (I always thought a radical Swiss was someone who took his jacket off at dinner- but I was clearly wrong) that will ensure a national vote within 2 to 3 years with the aim of scrapping the regime altogether. They, like the Cantons before them, object to the idea of anyone paying tax on an expenses basis.

The proposed changes in the law were, to the plodding residents of progressive taxpaying countries like me, quite minor  although quite possibly volcanic in  Swiss terms (though not volcanic enough for those culturally defective fellow travelers  who have betrayed all that Switzerland stands for).   Currently, lump-sum taxation is available to foreigners and Swiss citizens who have been abroad for over 10 years (the latter only being eligible to one year of the special regime). Under the draft law, Swiss citizens are eliminated (not literally).

Setting a minimum for lump-sum taxation was a moral imperative

Setting a minimum for lump-sum taxation was a moral imperative

The draft law  clarifies that the tax is based on the cost of living in Switzerland and abroad, whereas it had been previously unclear as to whether only Switzerland was included. This has to be one of the best pieces of tax haven doublespeak in decades and, if they were not Swiss, I would congratulate them on a good joke, well told.  The cost of living on which the tax is based bears no relation to the cost of living in Switzerland, abroad or, for that matter, in outer space. It is, in practice, calculated mechanically as a multiplier (currently 5, proposed 7) of the rent paid by the taxpayer or the rental value of an owned home. The proposed law does for the first time  include a minimum CHF 400,000 (around $425,000) in case any HNW individual was saving tax by shacking up in a youth hostel.

The question on everybody’s lips is “What will fall next?”. Can we expect Principal and Mixed Company rulings to be toppled? Will IP be returned home? Will Stand-up comedians miraculously stand up on Lake Geneva?

What a spoilsport

What a spoil sport

But the big question is whether the country can still lay claim to  “Class”, which has always been the backdrop to its discrete financial industry,  when it publicly expresses self-doubt and is inhabited by at least 103,000 whingeing reds disturbing its rigid norms? For what it is worth, my take on “Class” is that it is a cheap veneer of elegant superiority that has gradually been chipped away by all those inconvenient social pioneers- totally lacking in sartorial elegance -variously disguised in suffragettes’ skirts, cloth caps, loin-cloths, bushy beards and open sandals who, for well over a century, have been breaking down the walls of inequality in society. God bless them. Even James Bond, the product of a Swiss mother and Scottish father, is a little rough round the edges in his latest incarnation. Perhaps Switzerland is finally coming down from the mountain.

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