Swiss to Vote on Federal Inheritance Tax
Opponents say the measure could cripple hundreds of Switzerland’s small and midsize companies
Switzerland will vote this month on introducing a federal inheritance tax, a levy that opponents say could threaten the small and midsize companies that employ roughly 80% of the country’s workforce.
On June 14, voters will be asked to approve or reject an initiative that would place a 20% tax on inheritances of more than 2 million Swiss francs ($2.2 million) received directly by children. The proposed federal tax would replace a hodgepodge of local laws, most of which don’t require children who are heirs to pay anything.
The government, academics and business lobbies say the measure could cripple hundreds of Switzerland’s small and midsize companies because many beneficiaries would need to either sell the businesses or take on debt to pay the tax bill. That, they warn, could lead to instability and possibly layoffs.
“The existence of roughly 7,000 family businesses could be threatened by the initiative” over the next five years, said Tobias Trütsch, a University of St. Gallen economist. Passing the initiative could lead to losses of 12,000 jobs a year, he estimates.
The inheritance-tax initiative is the latest in a series of public votes that have challenged Switzerland’s reputation as a business-friendly environment. Two years ago, Swiss voters approved the so-called Minder Initiative, which requires publicly traded companies to seek approval from shareholders for executive compensation. A year later, Swiss voters backed the introduction of immigration quotas, a move that could make it harder for companies to recruit qualified staff.
Switzerland’s business environment is also being challenged by a strong currency that has weighed on exports, while the country’s private banks have struggled as the U.S., U.K., Germany and France crack down on tax evasion that was aided by strong privacy laws.
Proponents of the inheritance-tax initiative, which was organized by the Protestant People’s Party, say fairer and uniform taxes are needed for inherited wealth. All but four of Switzerland’s 26 cantons don’t impose inheritance taxes on wealth inherited from a parent. Heirs other than children pay rates ranging from 50% in Grisons to nothing in Schwyz.
The backers of the initiative say a countrywide federal tax would raise around three billion Swiss francs annually, two-thirds of which they want deposited in Switzerland’s social-security system.
“The distribution of wealth in Switzerland is becoming increasingly unfair,” said Andreas Käsermann, a spokesman for the initiative. He says ordinary workers face higher income and consumer taxes, but corporate wealth and capital don’t.
Data from the Federal Tax Administration show that 2% of the Swiss population are worth as much as the rest of the Alpine country combined. By comparison, 3% of the U.S. population holds more than double the wealth of the country’s poorest 90% of families, according to a 2013 survey conducted by the Federal Reserve.
Last year, the value of an average inherited estate was 580,000 francs, roughly seven times the average national wage, according to a study by the University of St. Gallen.
A host of business lobbies—including Swissmem, Swissmechanic and Economiesuisse—have recommended voters reject the proposal, saying it would be an effective double tax on income since firms already pay tax on earnings.
Switzerland’s cabinet, both houses of parliament and all of the country’s cantons have also recommended voters reject the measure.
Roy Nussbaum estimates the heirs of his family-owned company, a valve-and-pipe maker that employs about 435 people, could face taxes of as much as 40 million francs when he and other family members die.
“It won’t be easy raising that sort of money,” said Mr. Nussbaum, a fourth-generation member of the family that founded the company 111 years ago.
Kuhn Rikon AG, an 89-year-old maker of cooking equipment, also expects problems if the initiative passes.
Wolfgang Auwärter-Kuhn, a third-generation family member, said his children could be forced to sell the business, famous for pioneering the modern pressure cooker, to raise potential tax payments when he dies.
“It’s all tied up in the company,” Mr. Auwärter-Kuhn said of the money that would be needed to pay the tax bill.
Source: WSJ – Swiss to Vote on Federal Inheritance Tax
