Lump-Sum Taxation in Switzerland

A Systematic Classification into Swiss Tax Law with Current References

Carol Gregor Luethi

• Publisher: Books on Demand
• Year: 2017
• Print ISBN:
  9783744886383
• Edition: 1
• eBook ISBN:
  9783743104563
• Topic: Law
• Subtopic: Tax Law
• Index: Law

Both the Federal Act on Direct Federal Taxation (DBG) as well as the Federal Act on the Harmonisation of Income Taxes of the Cantons and Communities (StHG) allow non-working foreign citizens with Swiss residency to benefit from a special kind of income and wealth taxation. This historically anchored regulation has attracted wealthy foreign citizens to take up residency in Switzerland and will likely continue to do so. For the first time in over 150 years of lump-sum taxation history this book gives a systematical and comprehensive overview on the revised regulations and includes several side effects of taxation.***As lector, the manner of concentration to the topic, the comprehensive processing of the literature, as well as with the changing legal bases in the federal state, and in the cantons, appears to me as impressive. Indeed, this extremely successful master thesis is qualified for an award ceremony. It is because of this that Mr. Luethi received, from my side, the predicate summa cum laude. (Prof. Dr. Bernhard Zwahlen, President of the advisory board of the Swiss Institute of Taxation, Zurich)***Carol Gregor Luethi has very extensively investigated lump-sum taxation. Beneath the historical and current developments he was not afraid to investigate the practice in the cantons, what is very meritorious as there partly exist large differencies. Also, for this topic, existing literature and judicature is seamlessly integrated into his analysis. So far, only one scientifical work that dealed in a related depth with lump-sum taxation in Switzerland, existed, which is namely the one of Prof. Marco Bernasconi from 1983. Already with the introduction of the StHG but with the thigthening of lump-sum taxation more than ever this existing work is outdated. Carol Gregor Luethis scientific work is closing this gap. His substantiated investigation even goes beyond existing work, with side glances to foreign treatments. Due to this reason, Mr. Luethi received the top rating summa cum laude. (Prof. Dr. iur. Toni Amonn, Lecturer at the University of Bern; Partner and attorney-at-law, Law Firm Switzerland, Bern)

1. Introduction

Both the federal tax law (DBG) as well as the federal law for the harmonisation of direct taxes of cantons and communes (StHG) foresee a special form of measurement for non-working foreign citizens with residency in Switzerland.¹ The Swiss federal council revised this institute in 2012, with selective adjustments, and has accomodated considerations for location and fairness. The amended art. 14 DBG came into force on January 1, 2016 whilst the amended art. 6 StHG came into force on January 1, 2014.²

Lump-sum taxation has a long-standing history in Switzerland and intends to attract wealthy foreign citizens – and until December 31, 2015 under certain conditions also wealthy Swiss citizens – to take residency in Switzerland. The famous actor CHARLIE CHAPLIN – a prominent example of a presumptive lump-sum taxed person – spent his remaining years under favourable tax conditions in the lake Geneva region. Indeed, the choice of title for the LL.M. Taxation thesis found inspiration in these circumstances.³

Lump-sum taxation is part of the periodical political agenda and is being controversially discussed.⁴ The discussion is regularly about raison d’être and legitimacy of the lump-sum taxation and goes back to the federal implementation of this institution in 1949.

An example of the early history is as follows; The Swiss federal council recommended with the message of June 26, 2013 to the federal parliament to refuse the federal initiative “Schluss mit den Steuerprivilegien für Millionäre [Abschaffung der Pauschalbesteuerung – Translation: “Termination with tax privileges for millionaires (abolition of the lump-sum taxation)“]. The Swiss federal council however argues that, already on September 28, 2012, the federal parliament would had decided to strengthen the legislation for lump-sum taxation in Switzerland to increase its acceptance.⁵

The Swiss federal council see a certain compromise between the concern of tax equality and location attractiveness, which is particularly carried also by the cantons. Moreover, the Swiss federal council would recognize the importance of lump-sum taxation in terms of fiscal revenue, national economy and location attractiveness in certain cantons.⁶

The knowledge of lump-sum taxation in Switzerland varies not only with politics and general public but also very much with tax generalists. The overall target of this book is therefore to provide an overview on lump-sum taxation in Switzerland. Not only for practical use, for example in tax consulting, but it should also be helpful and provide an updated overview on the January 2016 law changes and their ongoing implementation in the various cantons.

This book especially focuses on the investigations on the different assessment basis for lump-sum taxation in the cantons. They have been comprehensively reviewed and clearly represented. Amongst other things also the most significant appropriate judicature⁷ is included in this analysis of lump-sum taxation. (These facts can be found in chapter 4 of this book.)

As a reference date for the current investigation, the relevant legal basis as of January, 1, 2016 (the date of enactment of the 2012 revised art. 14 DBG) has been chosen. Various cantons, such as Vaud, Geneva and Valais, have implemented their cantonal legal basis only after January 1, 2016. In these cases, the author worked with the most recent legal basis available from the tax authorities, but not more recent than March 15, 2016.

This book is structered as follows: The introduction is followed by a short overview of lump-sum taxation. After a definition of lump-sum taxation, particularly the historical context of the so called „Lex Chaplin“, its economical importance as well as the area of conflict between fiscal policy and lump-sum taxation, are covered. Moreover, brief reference will be taken to the political fields, together with a summerized look towards cross border cases.

The third part of the book, based on the regulations of DBG and StHG, will illustrate the most important fundamentals of taxation on income and wealth in Switzerland. The aim of this part of the book is to roughly classify lump-sum taxation into the Swiss tax system and to show the major differences between lump-sum taxation and ordinary taxation (as under the regime of lump-sum taxation, taxed persons have the possibility to choose between those two regimes). The third part of the book ends with a reference on the application and sources of law in connection with direct taxes. The explanations in this context cover the decision (Verfügung) in the law of direct taxes, the role of advice and consent (Rulings) as well as administrative regulations. However, tax rulings can be responsible for the fact that high court decisions in the field of lump-sum taxation are very rare to find in Switzerland.⁸

The fourth part of this book contains a systematical derivation and detailed explanation on the legal regulations of lump-sum taxation in Switzerland. The starting point for this is an inventory of the major differences between the previous and the new lump-sum tax legislation. Where it seems to be of sense for the teleological interpretation, also the regulations of the enactment of the Swiss federal council on the direct federal tax (Bundesratsbeschluss über die direkte Bundessteuer [BdBst]), and the regulations of the enactment of the Swiss federal council on the military tax (Bundesratsbeschluss über die Wehrsteuer [WStB]), are taken into consideration in a summerized manner. The attention however is more concentrated on the purpose of the legal norm, as the relevance of the historical legislator in general is decreasing. The former practice does not set a main focus for this book. Rather, it is the transitional regulations on applicability of old and new law that are being pointed out.

The modified lump-sum taxation, the explanations on flat-rate tax credit (Pauschale Steueranrechnung), and the withholding tax refund claim (Verrechnungssteuerrückerstattungsanspruch) are covered (in summary) and do not build a main focus of this book.

Comprehensive reference will be made to general procedures (Verfahren) in general and in connection with lump-sum taxation in Switzerland. Due to the fact that absolute and relative assessment basis (Mindestbemessungsgrundlagen) are applicable, mainly wealthy people profit from lump-sum taxation.

For this reason some side effects of tax law such as indirect part liquidation (indirekte Teilliquidation), taxation of art objects, household effects as well as trusts, find reference on the sidelines of this book.

The fifth section of this book analyzes the various assessment basis of lump-sum taxation in the 26 cantons of Switzerland. The following two questions of research will be covered:

• What is the minimum assessment basis for lump-sum taxation in the Swiss cantons, as of January 1, 2016?
• How does lump-sum taxation compensate for wealth tax in the Swiss cantons, as of January 1, 2016?

In chapter 6. the major results in answering the question of research in the context of „Lex Chaplin“ (lump-sum taxation) will be wrapped up and finally recognized. The minimum assessment basis in the cantons are clearly represented in Table 3 and Table 4 on page 183 f.

The following is based on extensive literature research. The relevant legal basis and commentaries are fundamental to the exemplifications. The investigations in the third chapter are based on the most popular educational tax books and commentaries on the Swiss Federal Constitution. In general, sources available in major academic libraries have been cited. Topics with reference to actualities have mostly been cited from articles in relevant professional journals. In an exemplary manner, articles from Neue Züricher Zeitung and Tages-Anzeiger (the two major newspapers in the Zurich area) have been cited – especially in the second chapter – to source a broad spectrum of political attitudes. As the major part of lump-sum taxation cases find place in the Romandie cantons of Switzerland, French speaking sources have also been referred to.

For the fifth chapter of this book, information requests with tax authorities have been used in any place where limited concrete information was available out of the relevant tax laws. Written requests have been, where needed, accomplished respectively and verified with oral information requests. Where this book contains statements towards practice of federal and cantonal administrations, they stand conditionally under inquiry on the concrete individual case.

At the beginning of April 2016 (as previously in 2013⁹), a serious data leak provided various media with sensitive data on offshore firms in Panama.¹⁰

Media report the following: „Heute drehen sich die Schlagzeilen um Steuerhinterziehung, Betrug, Geldwäscherei und Briefkastenfirmen. 11,5 Mio. Daten-sätze einer Treuhandfirma sind an die Öffentlichkeit gelangt. Hochrangige Persönlichkeiten […] werden mit Offshore-Konstrukten in Panama in Verbin-dung gebracht. […]“¹¹ [Today headlines show reports about tax evasion, fraud, money laundering and letterbox companies. 11.5 million data sets of a trust institution appeared before the public. Top-ranking personalities (…) have been brought into connection with offshore constructs in Panama. (…)] This citation shows that tax topics – notably when it comes to rich people – ever lead to emotional reactions and awaken interest.

Finally the following conclusion of REICH shall serve as connecting passage into the subsequent chapter Overview on lump-sum taxation in Switzerland:

„Bei der Aufwandbesteuerung (oder „Pauschalbesteuerung“ ge-nannt) geht es darum, dass wohlhabende Ausländer in der grossen Mehrheit der Kantone und auch im Bund die Möglichkeit haben, sich nicht nach den ordentlichen Bestimmungen der Einkommens- und Vermögenssteuergesetze besteuern zu lassen, sondern eine Pauschalsteuer zu entrichten, die sich bloss nach dem Lebensaufwand bemisst. Solche pauschalbesteuerte Steuerpflichtige schulden dann im Resultat oftmals nur einen bescheidenen Bruchteil der Steuern, die sie bei einer ordentlichen Veranlagung zu bezahlen hätten. Entspricht dies einer leistungsfähigkeitskonformen Besteuerung?“ ¹² (The point with lump-sum taxation is that in the majority of the cantons and also in federal tax law wealthy people have the opportunity to choose not to be taxed under the ordinary provisions on their worldwide income and wealth but to be taxed on a lump-sum taxation which is assessed on the basis of the cost of living. Those persons taxed under the lump-sum regime often owe only a modest fraction of tax compared to what they would have to pay under the ordinary tax regime. Does this correlate to an effectiveness conformable taxation?”)

---

¹ Botschaft Besteuerung nach dem Aufwand, BBl 2011, 6022, also to the following.

² Based on art. 72q para. 2 DBG are as of January 1, 2016 the regulations of StHG directly ap...

Table of contents

• Dedication
• Preface of the lector
• Preface of the co-lector
• Preliminary remarks of the author
• Table of contents
• List of literature
• List of materials
• List of abbreviations
• 1. Introduction
• 2. Overview on lump-sum taxation in Switzerland
• 3. Principles of Swiss taxation
• 4. Legal design of lump-sum taxation
• 5. The canton determined minimum amount as part of the measurement base and the kind of compensation of wealth tax
• 6. Summary of the findings
• 7. Closing remarks
• Subject index
• QR-Code
• Copyright