Plans to revise a 1953 Franco-Swiss inheritance tax accord are making waves. The new treaty would help France recover inheritance tax from its citizens living in Switzerland and force Swiss who own property in France to be taxed there.
“It’s been quite a lot of bad news for the Swiss expat community in France in the space of just a few years,” lamented Jean-Michel Begey, president of the Union of Swiss Abroad Associations of France (USAF). “We’ve only just got over the taxes that Swiss banks have imposed on foreign clients since 2010, and here’s another threat to expats.”
The new proposed Franco-Swiss treaty, drawn up by Paris and Bern, will not only affect the 2,000 French millionaires currently living in Switzerland. Many of Switzerland’s largest expat community – 170,000 Swiss live in France, many of whom have dual citizenship – may also be hit.
Under France’s existing 1953 convention governing inheritance with Switzerland, a French-based heir of a person residing in Switzerland is taxed by the relevant Swiss canton – for example, between zero per cent for Geneva and seven per cent for Vaud.
However, according to part of the draft text leaked to the Le Temps newspaper, “when an heir…resides in France at the time the person passes away, and they have been a resident there for at least six of the last ten years before they received the assets, France will tax all the assets received by this person.”
In France inheritance tax is progressive, starting at five per cent rising to 45 per cent for amounts over €1.8 million (SFr2.1 million), and 60 per cent when there are no direct family ties.
Resolute opposition
The news came out just a couple of days ahead of the annual Congress of the Swiss Abroad meeting in Lausanne from August 17-19, and led to animated discussions.
A resolution, unanimously passed by about 90 council members, warned the planned agreement could have a negative impact on Swiss expatriates living in and even outside France.
“You can understand that France is trying to stop taxes disappearing to Switzerland,” said Jean-Paul Aeschlimann, a Swiss citizen based in Montpellier who raised the issue during the Lausanne meeting. “But there has to be a distinction between individual cases and the thousands of Swiss living in France.”
Article 14 of the new convention, entitled “non-discrimination”, excludes any differentiation based on the taxpayer’s nationality.
But, when succession occurs, from now on Paris plans to tax real estate assets owned by Swiss residents living in France that are part of a property firm.
Uproar
“Switzerland is accepting French imperialism,” wrote Swiss lawyer Philippe Kenel in Le Temps earlier this month.
Bern’s provisional agreement to the new text and support from the Swiss Conference of Cantonal Finance Directors has caused disquiet, in particular on the political right.
In contrast to his colleagues, Vaud Finance Minister Pascal Broulis, a member of the centre-right Radical Party, said he was “very doubtful” about the proposed convention.
“It has only been initialled, which means it is far from being signed,” added Christian Democrat parliamentarian Christophe Darbellay on August 14.
Swiss business circles and chambers of commerce have been more vocal in their criticism.
„It’s hard to understand how the federal authorities initialled such a project,” the Employers’ Centre association said in a statement on August 23, adding that it was much more favourable to France. “It would almost grant French tax law a form of extra-territorial application.”
Room for manoeuvre
Switzerland’s room for manoeuvre is unclear.
“It would be difficult to go back to a text that has been approved by the federal and cantonal authorities,” said Nicolas Zambelli, a Geneva-based tax lawyer who specializes in Franco-Swiss affairs. “Especially as Paris has threatened to suspend the long-standing agreement on inheritance tax if the negotiations do not succeed.”
Zambelli said there remained a small possibility, however – the entry into force modalities.
He said the agreement mentioned 2014 but there might be a way of limiting its impact to heirs of French citizens who arrived in Switzerland after January 1, 2014.
It is also uncertain whether the new accord will dissuade rich French taxpayers from moving to Switzerland.
“We’re not sure. It could even have the opposite effect,” said Zambelli. “Certain clients who told me they were interested in moving are now planning to come with their entire family.”
And the Swiss will now think seriously about investing in property in France, he added.
Is this really French imperialism? Or is it a first sign of a crusade against the rich by the new French president François Hollande? The reality is more nuanced, as the renegotiation of the tax accord was actually launched during former president Nicolas Sarkozy’s regime.
“Paris has the right to renegotiate tax agreements with its neighbours,” said Green Party parliamentarian Antonio Hodgers. “Especially when they are over 50 years old.”
And in a world where people have become much more mobile, it’s quite normal for the countries of residence to be responsible for most taxation matters, he added.
Between March 20 and April 13, 2012, Switzerland signed double-taxation treaties with Britain, Germany and Austria.
Based on this accord, which is called Rubik, Bern has agreed to regulate the previously non-declared, untaxed funds deposited by foreign nationals in Switzerland.
For Germany and Britain, the tax rate varies from 21-41% of the assets, depending on the age of the bank account and the value of the assets. For Austria it is 15-38%.
After the treaty comes into effect, Switzerland will pay an annual withholding tax of 26% of capital income in Germany, 27-48% in Britain and 25% in Austria.
France has so far rejected the idea of a bilateral accord with the Swiss concerning tax evasion.
The accord suggested by the Swiss Bankers Association would allow French residents who are account holders to remain anonymous, with the Swiss authorities levying a tax and passing on the proceeds to the French.
The French have complained about the lack of cooperation from the Swiss concerning tax evasion investigations, with few requests for aid being accepted.