Recent proposals by the Young Socialists in Switzerland aim to introduce a 50 percent inheritance tax on wealth over 50 million francs, prompting some wealthy individuals to consider relocating to protect their assets. This push for higher taxes on the rich mirrors global trends, particularly among G-20 nations, influenced by economists like Thomas Piketty. Despite perceptions of Switzerland as a tax haven, analyses reveal that the affluent already bear a significant tax burden. Comparisons of tax obligations across countries are complicated by differing systems and the lack of transparency among the wealthy, but studies indicate that multimillionaires in Switzerland, like Peter Hasler, face varying tax rates depending on their residency, particularly between Zug and Zurich.
The Impact of Inheritance Tax Initiatives on Switzerland’s Wealthy
In recent times, the affluent in Switzerland have found themselves taken aback by the Young Socialists’ proposed inheritance tax initiative. This initiative aims to impose a hefty 50 percent tax on wealth exceeding 50 million francs. In light of these changes, some wealthy individuals are contemplating relocating to safeguard their fortunes.
Global Trends in Taxation of the Wealthy
The call for higher taxes on the ultra-rich is gaining traction worldwide, particularly among G-20 nations. Influenced by renowned French economist Thomas Piketty and his protégé Gabriel Zucman, one significant proposal is to introduce an annual wealth tax of 2 percent targeted at billionaires.
Underlying these initiatives is a growing sentiment that the wealthy contribute disproportionately less to the public good. However, this perspective may not fully apply to Switzerland, often labeled a tax haven. In fact, analyses indicate that the tax burden on the affluent in Switzerland is already quite substantial, comparable to that in Germany and Austria, both of which are known for their high taxation rates.
Comparing the tax obligations of the wealthy across different countries is inherently complex due to varying tax systems. Additionally, the reluctance of wealthy individuals to disclose their tax returns leads to reliance on model calculations that represent typical multimillionaires and billionaires.
Recent model calculations from the Tax Justice Network and Oxfam Germany highlight this issue. These organizations, critical of globalization, advocate for equitable taxation of the wealthy. Their models are based on solid data, providing a foundation for cross-country comparisons.
The study focusing on Switzerland was conducted by inequality expert Isabel Martínez from the Economic Research Institute at ETH Zurich (KOF). Meanwhile, the analyses for Austria and Germany were carried out by the Momentum Institute in Vienna and the Tax Justice Network in Berlin, respectively. The findings were further refined by additional calculations from NZZ regarding the tax burdens on affluent citizens.
To illustrate the tax situation, let’s consider a hypothetical Swiss multimillionaire, Peter Hasler. At 55 years old, Hasler belongs to the top one-thousandth of Switzerland’s wealthiest individuals, with a net worth of approximately 83 million francs, in line with the average for this elite group.
The majority of Hasler’s assets are tied up in the family business that he co-owns with his sister, valued at 65 million francs. Additionally, he possesses a large residence and several rental properties worth 13.5 million francs, alongside stock market investments totaling 3.5 million and personal assets such as cars and art valued at 1.5 million francs.
Hasler’s income situation plays a crucial role in determining his tax obligations. As the CEO of the family enterprise, he draws a salary of 650,000 francs annually. His income streams also include rental income of 500,000 francs and returns from stock investments amounting to 100,000 francs. However, the most significant portion of his earnings, around 5 million francs, comes from the profits of his business, leading to a gross income of 6.3 million francs per year.
So, how much tax will multimillionaire Hasler owe in Switzerland? To answer this, it’s essential to recognize that Hasler, like many wealthy individuals, has two distinct options regarding his company profits.
The first option allows Hasler to distribute all company profits as dividends, incurring taxes on his entire gross income of 6.3 million francs. This approach provides immediate access to funds for personal use, but many wealthy individuals prefer to minimize cash in hand due to limited consumption avenues.
Consequently, many opt for a second, more tax-efficient strategy. By allocating company profits to a holding company he owns, along with rental income, Hasler can keep these earnings largely tax-exempt until he withdraws them for personal consumption. Only at that point would the full tax implications of the first option come into play.
According to KOF’s analysis, if Hasler chooses the first option without tax optimization, he will face a tax rate of 27 percent on his gross income, equating to 1.7 million francs. Conversely, if he selects the tax-saving route, his tax burden decreases to approximately 19 percent, or 1.2 million francs.
The majority of his taxes stem from company profits, which, although tax-free within the holding company, have already been taxed at the corporate level. Following this are the wealth taxes imposed by the canton and municipality, along with federal and local income taxes.
This analysis assumes Hasler resides in Zug, Switzerland’s most tax-favorable canton. This assumption holds weight, as Zug is particularly attractive for wealthy individuals seeking lower tax rates. However, multimillionaires can also be found living in other parts of Switzerland.
If Hasler lived in Zurich, just a short distance from Zug, his tax burden would significantly increase. NZZ estimates that he would pay 31 percent in taxes under the tax-saving model, which amounts to 2 million francs. Without tax optimization, his burden could soar to 46 percent, or 2.9 million francs.
How does Peter Hasler’s tax situation compare with wealthy individuals in Germany and Austria? Let’s examine his counterparts, Christian Schmidt and Stefan Berger, both successful entrepreneurs within their respective nations.
In Germany, multimillionaire Schmidt faces a 29 percent tax burden on his gross income, according to the Tax Justice Network’s analysis, which only considered the tax-saving holding company strategy. If he were to withdraw his total gross income, NZZ estimates his tax obligation would rise to 41 percent.
In Austria, Berger’s tax burden is pegged at 30 percent for the tax-saving model, but this could escalate to 46 percent without tax optimization.
Thus, while Schmidt and Berger in Germany and Austria may pay higher taxes than Hasler in Switzerland, this only holds true if Hasler resides in Zug. If he were to choose Zurich as his home, his tax obligations would surpass those of his counterparts in neighboring countries.
This trend persists across much of Switzerland, where Zurich sits in the mid-range for tax burdens. In various other cantons and municipalities, Hasler’s tax liabilities could be even greater. Conversely, in Germany and Austria, tax rates are relatively consistent across regions. Hence, Switzerland should not be viewed as a tax paradise for multimillionaires like Peter Hasler.
Beyond the multimillionaires, there exists a distinct group: the billionaires. As reported by Forbes, Switzerland boasts 86 billionaires, compared to 120 in Germany and 9 in Austria. For the purposes of tax comparisons, the study identifies a typical billionaire from each country.
In Switzerland, André Hoffmann, a 66-year-old Roche heir residing in the canton of Vaud, is a prime example. While the exact figures of Hoffmann’s wealth and income remain undisclosed, the researchers can only provide rough estimates based on his Roche shareholdings, which are believed to amount to around