Switzerland will keep its special low-tax deals for wealthy foreigners such as music and sports celebrities but increase the amount of tax they pay following a vote by parliament which faced pressure to scrap the system.
The lower house of parliament voted late on Wednesday to reject a proposal by the centre-left Social Democrats (SP) to scrap the tax breaks but adopted a government plan to raise the tax most rich foreigners have to pay.
"With this reform, we want to improve and strengthen the acceptance of the flat-rate tax," Swiss Finance Minister Eveline Widmer-Schlumpf told parliament, adding it would mean that 80 percent of those involved would pay more tax after the changes.
Switzerland has attracted more than 5,000 wealthy foreigners to settle in the country with tax deals based on the rental value of their property rather than their actual income or wealth, on the condition that they do not work in the country.
Among those to take advantage of the scheme are Formula One driver Michael Schumacher and pop stars Phil Collins and Tina Turner as well as Switzerland's richest man, furniture store Ikea founder Ingvar Kamprad, who moved to the country from Sweden in 1976.
Opposition to favorable treatment for tax exiles has been growing in Switzerland, with the cantons of Zurich, Schaffhausen and Appenzell scrapping the policy in recent years after popular referendums on the issue.
The canton of Bern is set to vote on the issue on Sept. 23. It includes the Alpine resort of Gstaad, which has a reputation as a playground for the rich and famous including French rocker Johnny Hallyday and Formula One supremo Bernie Ecclestone.
Rich Flee Higher Taxes Elsewhere
"The population has had enough of this special regime," SP parliamentarian Susanne Leutenegger Oberholzer told parliament as she sought support for a national end to the policy.
"It is an arbitrary regime, a regime that cannot be verified, a regime that means that only a part of the actual income and wealth of the affected people has to be taxed," she said, noting that opposition from abroad was also on the rise.
Many of the tax exiles come from neighboring France and the number could rise due to a 75 percent supertax on income above 1 million euros ($1.29 million) proposed by Socialist President Francois Hollande.
Earlier this week, Bernard Arnault, France's richest man, came under fire for his decision to seek Belgian nationality.
While parliament rejected the SP bid to end the special tax system, it backed the Swiss government's proposal to increase the basis on which taxes are levied to seven times the annual rental value of rich foreigners' homes from five times now.
For those who live in a hotel, taxes will be levied on three times the cost of their accommodation from a current two times.
The government will also introduce a minimum basis of 400,000 francs ($426,400) to qualify for special treatment.
The tax increase — which still must be approved by the upper house of parliament — would be phased in over five years.
Switzerland recorded revenues of 668 million francs in 2010 under the scheme, with some areas — particularly in French-speaking parts of Switzerland — more dependent on the income due to higher numbers of rich foreigners living there.
The special tax was first introduced in 1862 by the canton of Vaud along Lake Geneva in a bid to help the tourist industry by encouraging wealthy pensioners to move to the country.
The government says 22,000 jobs are dependent on the scheme.
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