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Serge Calame
Background
On 30 November 2014, the Swiss population voted by a very strong majority against a left-wing initiative aiming to abolish the lump sum taxation system in place, the so-called “forfait” (see our 2 December 2014 “The Forfait Reloaded” Newsletter for the complete story).
The same day in Geneva, voters further rejected a separate initiative targeting this time the forfait on a cantonal level. Again, the population massively rejected the initiative. In addition, and much to the Geneva Government’s surprise, so was the official Cantonal counteroffer aiming to drastically increase the minimum conditions to obtain a forfait (a minimal forfait amount of CHF 600’000 was foreseen).
In parallel, the Swiss Federal Parliament enacted new rules at Federal level, setting out stricter conditions. The new Federal law came into force on 1 January 2016.
Following this new Federal law and the rejection in Geneva of both the cantonal initiative and the authorities’ counteroffer, the Geneva parliament drafted a new cantonal law, to adjust the cantonal rules to the Federal ones.
Despite the cosmetic nature of the new amendments and the clear vote of the population reaffirming its intent to maintain the forfait, a minority again called for a referendum in Geneva, driven of course only by its political agenda. Geneva voters however again reaffirmed their commitment to the forfait regime by refusing the referendum and accordingly accepting the Geneva implementation law on Sunday 5 June 2016.
The new Geneva cantonal law
The Geneva cantonal law foresees the same stricter conditions as required at Federal level, which are namely the following:
- The minimum forfait threshold is set at CHF 400’000;
- The living expenses will be deemed to amount to a minimum of 7 times the rent of the property occupied by the taxpayer or, where the taxpayer owns his residence, of 7 times the deemed rental value of his/her property.
The main new element to be implemented at cantonal level following the Federal reform was that cantons should take into account the wealth tax, which would otherwise be due by taxpayers wishing to obtain a lump sum tax agreement. Therefore the new Geneva forfait law foresees that the wealth tax – which is not per se levied under this regime – is economically taken into account by adding a 10% increase when assessing the annual living expenses that will serve to calculate the level of the forfait to be granted.
It is worthwhile noting on this point that the canton of Vaud applies a max. 15% increase, which can make Geneva more attractive in certain cases for new forfait applicants.
According to the grandfathering rule, these stricter conditions apply immediately to new taxpayers but those who already benefit from a forfait at the date of the entry in force of the law, i.e. 1 January 2016, may maintain or renew their forfait on the basis of the former law until the 2020 tax period.
Comment
Swiss voters have again demonstrated their very strong attachment to the forfait. The new rules do not change much to the previous conditions that were already applied in practice in Geneva. They however have the great merit to provide much more clarity on the matter. After a number of unjustified attacks, all widely rejected, the forfait can accordingly be deemed to remain available for a number of years to come in Switzerland, in particular in Geneva.
It is also worthwhile noting again that the forfait is not a tax privilege but an alternative way of assessing a taxpayer’s basis.
Indeed, due to the assessment of revenues and wealth based on the global method in Switzerland, the tax reporting may represent a costly and difficult exercise for ordinary taxpayers. The forfait accordingly permits a very welcome simplification of the tax reporting duty for more sophisticated and international taxpayers.
Another important feature is that the forfait provides a strong protection of the taxpayer’s privacy.
The forfait accordingly remains a very efficient taxation alternative, very well-suited for sportsmen, businessmen, artists and retired individuals having assets and interests in many different countries but wishing to have their main residence in Switzerland, Geneva included!
