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Paris tax hunt sends French to Switzerland

France has made highly publicized efforts in recent months to crack down on tax evaders including French nationals who inherit from wealthy Swiss residents. However, some say the move will simply persuade French to up sticks and take their wealth with them.

Paris tax hunt sends French to Switzerland
Some fear wealthy French will flee to Switzerland. Photo: Kecko/flickr

France's rush to tax nationals who inherit from Swiss residents will backfire by spurring many wealthy Frenchmen to move to Switzerland, taking their tax euros with them, observers say.

France "has shot itself in the foot, several times", Claudine Schmid, a French parliamentarian of the rightwing UMP party, told AFP on Monday.

Her comments came after Paris and Bern signed a deal earlier this month changing the way cross border inheritance is taxed, as part of a French drive to rake in taxes.

France, which has also been pushing Switzerland to lose its long sacrosanct banking secrecy and help it track down French nationals with hidden Swiss bank accounts, is eager to tax its residents who receive inheritances from across the Swiss border.

Since 1953, inheritance has been taxed in the country where the deceased lived, but the new agreement will mean beneficiaries will be taxed in the country where they themselves reside.

The change still needs to be ratified by both the Swiss and French parliaments and which is not set to take effect until 2015 at the earliest.

But when it does it will dramatically increase the tax burden on French heirs of estates in Switzerland, which caps its inheritance tax at 7.0 percent, compared to 45 percent in neighbouring France.

Schmid, who represents French nationals living in Switzerland and Liechtenstein and who opposes the change, said she already knew of two future heirs of Swiss residents who had decided to move to the small, wealthy Alpine nation.

One, a Frenchman in his 60s, was planning to move from Paris to join his parents and  sister in Switzerland, she said. She also knew of a Swiss citizen living on the French side of the border near Geneva who was getting ready to move back.

"He has put his house up for sale," she said.

Geneva-based tax expert Philippe Mortge also said he had been receiving calls from French citizens who had sold everything in France, "cars, stocks, works of art and even a Cote d'Azur apartment," wanting advice on how to move to Switzerland.

The people he talks to insist they don't want to hand over nearly half of their estate to French tax authorities, he said.

In the past, many people may have used Swiss banking secrecy as a shield to keep their wealth out of view from the French tax man. Since France's former budget minister Jerome Cahuzac was forced to resign in disgrace earlier this year over an undeclared account, the tax authorities have been cracking down especially hard.

"Banking secrecy is dead, and the dawn of tax exiles has arrived," Mortge said.

An estimated 200,000 French citizens already reside in Switzerland.

Many other wealthy Frenchmen have hinted they might soon follow, especiallyafter French President Francois Holland's Socialist government last year proposed a 75-percent tax rate on earnings of more than €1 million ($1.3 million).

Schmid insisted Monday the inheritance tax shift would cause a new wave of French tax, or rather pending heir, exiles. They would thus not only escape French inheritance tax but also stop paying payroll and other taxes in the country.

Many Swiss also oppose the law change, with around a dozen parliamentarians – from the Greens through the centre and to the right – recently condemning the accord as "completely unfavourable for Switzerland".

According to the deal, a Swiss national living in France who inherits 850,000 euros will according to the new deal have to pay over €156,000 to the French tax authorities.

He or she would have paid nothing if they lived on the Swiss side of the border, according to Caroline Gueissaz, of the canton of Neuchatel parliament.

Geneva parliamentarian Bertrand Buchs meanwhile described the agreement as a "catastrophe" for the canton.

He pointed out that some 53,000 Swiss citizens living right across the border — many of them commuting daily into Geneva — would be subjected to the new French inheritance tax.

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MONEY

Reader question: Can a foreign national obtain a loan in Switzerland and under what conditions?

When it comes to borrowing money from a Swiss bank, nationality may play a role in some cases, but not in others. This is what you should know about this process.

Reader question: Can a foreign national obtain a loan in Switzerland and under what conditions?
Getting a losn in Switzerland is subject to many conditions. Photo by Claudio Schwarz/Unsplash

Like almost everything in Switzerland, consumer loans are regulated by legislation, in this case the Consumer Credit Act.

It defines a loan as between 550 and 80,000 francs, “offered by commercial providers of financial services”. Lower or higher amounts are not subject to the Consumer Credit Act.

As is the case in many other countries, Swiss banks have strict criteria about who they lend money to. After all, no financial institution wants to deal with people who are not creditworthy.

Whether or not a foreign national can borrow money from a bank depends on their permanent place of residence and permit status.

As a rule, Swiss lenders don’t give loans to non-residents. So if you reside abroad, there is practically no chance that a bank in Switzerland will lend you money.

However, some financial institutions make exceptions for cross-border workers. If you fall under this category, you can use this interactive tool, select “ Permit G” under “Residence Permit” and see what, if any, options, there are.

READ MORE: EXPLAINED: What cross-border workers should know about taxation in Switzerland

If you are a foreign national but have a permanent residence status (Permit C), your chances of getting a loan are practically the same as those of Swiss citizens — provided, of course, that you meet all the requirements set by lenders (see below).

What about other permit holders?

If you have a B Permit, you might be approved for a loan, depending on how long you have had this permit — obviously, the longer the better.

However, “you may be offered a higher interest rate or a limited loan amount. This is because of the statistically higher probability that you will return to your home country. Some lenders require the loan to be repaid by the time the B permit expires”, according to consumer comparison site comparis.ch 

Holders of other, temporary or conditional permits are not accepted.

READ MORE: ‘A feeling of belonging’: What it’s like to become Swiss

What conditions — other than residence permit — should you fill to be considered for a loan?

You must be at least 18 years of age, though additional restrictions may apply to applicants under 25 — for instance, a higher interest rate or a limited loan amount. That’s because “lenders are generally more cautious with young applicants as their financial circumstances are usually less settled and the risk of default is deemed to be higher,” Comparis noted.

The same cautious approach applies to pensioners, especially those who have no regular income. The social security payments (AHV/AVS) do not count as income for the purpose of the loan.

There is also other eligibility criteria, based on employment status and salary. People with a regular income have a higher chance of obtaining a loan than those who are self-employed, temporarily employed, work on hourly basis or, logically, unemployed.

Other factors, including your existing debts, are also taken into account in the decision process.

Basically, lenders favour applicants with a stable income and good financial standing, in much the same way as supplemental health insurance carriers prefer young and healthy people.

Keep in mind that if your loan application is rejected, this will be recorded in the database of the  Central Office for Credit Information, making it more difficult, though not impossible, to get a loan in the future.

The same rules do not apply to American citizens

That’s because Swiss and European banks are subjected to US demands to disclose the assets of Americans overseas in order to prevent tax evasion.

As adherence to these requirements is a major headache for the banks and in some cases also violates their country’s privacy laws, financial institutions prefer not to deal with Americans at all, even those who are permanent residents.

If you are a US citizen who also has Swiss nationality, you may have an easier time of it, but could still face hurdles in obtaining loans and other banking services.

There is no immediate relief in sight, although many organisations representing Americans abroad are lobbying in Washington to change the existing legislation.

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