Monday, October 22, 2007

CGT 'Tax Paradise'

We recently posted an article about Switzerland being the 'Pied Piper' of the financial markets with their attempt to lull fund managers over to the shores of Lake Geneva. It looks like the Times has picked up on the potential for the Swiss to clean up in the high stakes game of 'Tax Musical Chairs'.

As we have said previously the mobile nature of funds and their managers makes a quick skip over the channel an easy issue to deal with and the latest 80% affective tax hike on capital gains in the UK has the Swiss licking their lips.

Switzerland has, over the years, lost out to other jurisdictions and has become less of a tax friendly center than many believe. The 'forfeiture' tax (where tax is calculated on the monthly rental value of your property and timesed by 5) is really only affective for the super wealthy, as someone under this tax structure is forbidden to work in Switzerland.

However, times they are a changin. On personal capital gains in Switzerland there is no tax at all, so you can happily invest in stocks, hedge funds and whatever you want, safe in the knowledge that your capital gains are all yours. The problem occurs when it is not a 'private gain'. Basically 'carried interest' in funds are taxed as income and will hit you in the wallet but Mr Derobert of the Geneva Private Bankers Association is optimistic that an agreement to change this rule will be made and describes Switzerland as 'Capital Gains Tax paradise'. In our opinion, if this happens then it would make sense for fund managers to set up home here.

The consequences of the latest tax hike for the Tax Reich in the UK has also affected the 90 day rule. Whereas before, the day of arrival and departure was not included for the 90 day rule, it now is, at least from next April. This is seen as a direct attack on groups such as the 'Monaco Boys' so called because of their routine of living in Monaco, paying no tax but working in the UK for most of the week. Under the previous rule a work week of Monday to Thursday would have only counted as two days for tax purposes, it now counts as 4.

I assume that someone in the UK Tax Reich thought that if they changed this rule everyone would come scampering home and make peace with the Tax Man and take it as a slap on the wrist from the Nanny State.. They obviously do not realise what they are up against.

I only go to London when I have to. Under the old regime I may have stayed three days at a time, spending money in hotels restaurants and bars while I work my stay, bringing revenue to the capital, as many other people do. They and I will now just get the earliest flight in and the latest flight out and get what I need to have done in a day, the rest I will do on the phone, if necessary.

John Carver, a tax partner at KPMG Switzerland, says that 'There are thousands of people who commute from Zurich to London on Monday morning and return Friday evening. Banks may decide it is cheaper to keep those departments in Zurich than pay the tax for their executives".

It will only take one straw to break the camel's back of the daily nightmare that is London. The transport is atrocious the airports are a nightmare and the crime is ridiculous, maybe the tax hike is just enough to kill people's love of the City. I left the City 4 years ago, for me the red tape, stealth taxes and general feeling that I wasn't getting my money's worth for the tax I paid, eventually lead me to packing my bags. I have to say, I do not regret it for a moment. I suspect that many will be following...

If you would like to get a taste of the community in Switzerland, there are tons of expat site...I like the look of a new one that has started...check it out here.....

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