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Councillor of State and initiator of the 'Against Rip-off' initiative Thomas Minder addresses during Switzerland's Christian Democratic Party's (CVP) meeting in the northern Swiss town of Olten Jan. 19, 2013. (ARND WIEGMANN/REUTERS)
Councillor of State and initiator of the 'Against Rip-off' initiative Thomas Minder addresses during Switzerland's Christian Democratic Party's (CVP) meeting in the northern Swiss town of Olten Jan. 19, 2013. (ARND WIEGMANN/REUTERS)

The Swiss turn on the superrich Add to ...

Special tax deals for foreigners were first introduced in 1862 by the canton of Vaud along Lake Geneva (where Kamprad lives) in a bid to boost the tourist industry in poor rural regions by encouraging wealthy pensioners to move there. The deals were later adopted nationwide in rules dubbed Lex Chaplin after Charlie Chaplin moved to Switzerland in 1953, having fled the United States as a suspected Communist during the McCarthy witch hunt.

The number of super-wealthy foreigners lured to Switzerland has doubled in the last decade, to more than 5,000. Their taxes are based on the rental value of their property rather than their income or wealth, on the condition that they do not work in the country. The influx is blamed for pushing up housing prices, particularly in desirable areas around Lake Zurich and Geneva as well as the more glitzy Alpine resorts. Many of the tax exiles come from neighbouring France, and more French could be scuttling across the border soon due to a 75 per cent super-tax on income above €1-million ($1.29-million) proposed by Socialist President Hollande. Bernard Arnault, France’s richest man, was pilloried last year for his decision to seek Belgian nationality.

The cantons of Zurich, Basel, Schaffhausen and Appenzell Ausserrhoden have already scrapped their special deals for foreign tax exiles, but others have upheld the current system, albeit raising the taxes levied on foreigners. Mr. Roth’s Social Democrats are campaigning to force a national referendum on this issue too. “The system has an extremely damaging impact on the housing market, on Switzerland’s image, and international tax justice,” he says.

The Swiss government, which saw revenues of $716-million in 2010 from the special taxes on foreigners, is seeking to head off the Social Democrat campaign by increasing those taxes by about 40 per cent. Economiesuisse is campaigning to uphold the current system.

Both Mr. Minder and Roth fear their campaigns could be scuppered. “It is going to be a battle of money,” says Mr. Minder. “It’s the classic battle between the small guy and the huge Economiesuisse establishment.”

He’s right to be worried. Zurich economist Kissling says money has increasingly determined the outcome of Swiss referenda, especially since billionaire industrialist Christoph Blocher started funding campaigns by the right-wing Swiss People’s Party. He argues that the only way to tackle wealth inequality is to increase the inheritance tax, another issue the Social Democrats want to put to a vote, although that would likely face even more entrenched opposition. Swiss inheritance tax varies from canton to canton but is generally low – another draw for foreigners.

The 1 per cent may be outraged by these assaults on their wallets, but they are already adjusting. Back at that UBS shareholder meeting from which Mr. Minder got the bum’s rush, another chiding stockholder offered Mr. Ospel a string of sausages. “In the future you will have to live a little more modestly,” he told the UBS chairman. Forewarned of the stunt, Mr. Ospel whipped out a tube of mustard, as though he were ready to tuck into them right then. But he got the message. Later that year, Mr. Ospel and other ex-board members agreed to return $35-million in bonuses and other payments from the bank. Credit Suisse has not paid top executives any cash awards for the last four years, in favor of stock-based schemes linked to the bank’s share price. Mr. Dougan’s pay was cut in half in 2011 as the bank’s stock tumbled, although he still took home $6.2-million.

Ethos, an influential group of shareholders that makes recommendations to Swiss pension funds, says managers’ total pay at financial firms dropped 23 per cent in 2011, although remuneration in other sectors rose 5 per cent.

UBS drew howls of outrage again last year over the $4-million signing-on fee for new chairman Axel Weber, prompting more than a third of its shareholders to reject the bank’s pay plans. Mr. Weber, who is German, refuses to comment publically on the debate around the Mr. Minder proposals. That might be caution, or it might be a smart tactical decision. “It is a matter for the Swiss people,” he told the SonntagsZeitung newspaper. “At the moment, we generally see that the more bankers publicly wish for something, the less likely it is to be fulfilled politically.”

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  • UBS Group AG
    $13.56
    -0.10
    (-0.73%)
  • Updated July 28 1:12 PM EDT. Delayed by at least 15 minutes.

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