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-   -   End of the 'expat' benefits ?? (https://www.englishforum.ch/finance-banking-taxation/16773-end-expat-benefits.html)

dino 03.01.2008 11:58

End of the 'expat' benefits ??
 
My 2004 tax return was challenged by the nice folks in the Zurich steuer department, on what I felt were very flimsy grounds. I was treated as an 'expat' for 2002 and 2003, and was allowed to deduct the cost of international school from taxable income on that basis. Out of the blue, last year (2006), they decided that back in 2004 I was not eligible for the benefit because my 2002 contract was 'open ended'.

I hired a lawyer and challenged them at the rekurskommission. The kommission have just come back with a decision, and have not only allowed the tax dept to retroactively charge me higher tax, but also said that the whole regulation allowing benefits to expats was illegal and therefore not to be applied (to anyone, I presume) :eek:

I am pissed off to say the least... but also left wondering, how can it be legal for them to go back in time and change the law on me ???

Has anyone else been affected by this whimsical change?

I would fight them further, but Swiss lawyers don't come cheap; so even though I am convinced I am not at fault, I will have to give in and just hand over a chunk of my hard earned savings... :mad:

gbn 03.01.2008 12:11

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 150788)
My 2004 tax return was challenged by the nice folks in the Zurich steuer department, on what I felt were very flimsy grounds. I was treated as an 'expat' for 2002 and 2003, and was allowed to deduct the cost of international school from taxable income on that basis. Out of the blue, last year (2006), they decided that back in 2004 I was not eligible for the benefit because my 2002 contract was 'open ended'.

I hired a lawyer and challenged them at the rekurskommission. The kommission have just come back with a decision, and have not only allowed the tax dept to retroactively charge me higher tax, but also said that the whole regulation allowing benefits to expats was illegal and therefore not to be applied (to anyone, I presume) :eek:

I am pissed off to say the least... but also left wondering, how can it be legal for them to go back in time and change the law on me ???

Has anyone else been affected by this whimsical change?

I would fight them further, but Swiss lawyers don't come cheap; so even though I am convinced I am not at fault, I will have to give in and just hand over a chunk of my hard earned savings... :mad:

Open ended is the clue here, surely.

Why should you get tax relief for not wanting to send you kids to a local school?
And make me pay more for your privelege when I already pay taxes for the school system...

03.01.2008 12:40

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 150788)
My 2004 tax return was challenged by the nice folks in the Zurich steuer department, on what I felt were very flimsy grounds. I was treated as an 'expat' for 2002 and 2003, and was allowed to deduct the cost of international school from taxable income on that basis. Out of the blue, last year (2006), they decided that back in 2004 I was not eligible for the benefit because my 2002 contract was 'open ended'.

I hired a lawyer and challenged them at the rekurskommission. The kommission have just come back with a decision, and have not only allowed the tax dept to retroactively charge me higher tax, but also said that the whole regulation allowing benefits to expats was illegal and therefore not to be applied (to anyone, I presume) :eek:

I am pissed off to say the least... but also left wondering, how can it be legal for them to go back in time and change the law on me ???

Has anyone else been affected by this whimsical change?

I would fight them further, but Swiss lawyers don't come cheap; so even though I am convinced I am not at fault, I will have to give in and just hand over a chunk of my hard earned savings... :mad:

I had the same experience but in Saint Gallen and without the expensive lawyer. The bill I got was a shock to say the least.

03.01.2008 12:42

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by gbn (Post 150799)
Open ended is the clue here, surely.

Why should you get tax relief for not wanting to send you kids to a local school?
And make me pay more for your privelege when I already pay taxes for the school system...

Actually, this makes me realise there was one difference for me - the local schools could not offer my 14 year old daughter a place - she went 4 months without any schooling at all and we sent her to International School as a last resort. So I do believe I have a right to feel a bit cross :msnmad:.

Mark75 03.01.2008 13:00

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 150788)
My 2004 tax return was challenged by the nice folks in the Zurich steuer department, on what I felt were very flimsy grounds. I was treated as an 'expat' for 2002 and 2003, and was allowed to deduct the cost of international school from taxable income on that basis. Out of the blue, last year (2006), they decided that back in 2004 I was not eligible for the benefit because my 2002 contract was 'open ended'.

(emphasis mine)

The guidelines of the Zurich tax office are quite clear on this: If you're on an open ended contract, you're not supposed to enjoy expat benefits at all. Hence, I'm sure you're out of luck for 2004 and the following years.

I don't know about 2002 and 2003 though.

gbn 03.01.2008 13:02

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by swissbob (Post 150817)
Actually, this makes me realise there was one difference for me - the local schools could not offer my 14 year old daughter a place - she went 4 months without any schooling at all and we sent her to International School as a last resort. So I do believe I have a right to feel a bit cross :msnmad:.

So:
- you uprooted a 14 year old (from the UK?, exams in 2 years)
- did not plan her schooling before you arrived here
- left her unschooled for 4 months

And then moan about not getting tax relief because you had to run around and arrange private, expensive schooling :confused:

Which is expensive because companies pay it for short term high flyers on expat deals...

Lob 03.01.2008 13:16

Re: End of the 'expat' benefits ??
 
I remember the old, old days where Zurich tax office was really taken advantage of - mid-90s. Every contractor was hit back then as they closed the self-made loopholes.

Thank goodness Swiss taxation rates are so reasonable.

Tilia 03.01.2008 13:41

Re: End of the 'expat' benefits ??
 
Considering the fact that attending school is mandatory in Switzerland, it seems quite strange to me that they couldn't offer you a place. Didn't they offer you a place in another district ad interim or something?

Quote:

Originally Posted by swissbob (Post 150817)
Actually, this makes me realise there was one difference for me - the local schools could not offer my 14 year old daughter a place - she went 4 months without any schooling at all and we sent her to International School as a last resort. So I do believe I have a right to feel a bit cross :msnmad:.


Richard 03.01.2008 14:57

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by Mark75 (Post 150821)
(emphasis mine)

The guidelines of the Zurich tax office are quite clear on this: If you're on an open ended contract, you're not supposed to enjoy expat benefits at all. Hence, I'm sure you're out of luck for 2004 and the following years.

I don't know about 2002 and 2003 though.

You are clear for 2002 but they could well bite at you for 2003... And you are quite correct that there are strict conditions attached to expat privileges...

The comment that they are illegal is however entirely new to me as this is an international agreement to allow free flow of executives to the benefit of international companies in various locations worldwide and not something the Swiss dreamt up overnight...

dino 08.01.2008 13:54

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by gbn (Post 150799)
Open ended is the clue here, surely.

Why should you get tax relief for not wanting to send you kids to a local school?
And make me pay more for your privelege when I already pay taxes for the school system...

GBN

if you feel like venting, be my guest, but I don't see how you conceivably pay for my 'privilege'. In fact, part of my taxes pay for the public school that your kids attend, and mine don't ...

dino 08.01.2008 13:56

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by Richard (Post 150866)
You are clear for 2002 but they could well bite at you for 2003... And you are quite correct that there are strict conditions attached to expat privileges...

The comment that they are illegal is however entirely new to me as this is an international agreement to allow free flow of executives to the benefit of international companies in various locations worldwide and not something the Swiss dreamt up overnight...

Richard

I doubt there is any 'international agreement' involved here. Its entirely local regulation that the large MNCs negotiated with the steueramt in Zurich canton.

I actually have a copy of the regulation and it clearly describes all tax benefits granted to expatriate specialists as 'illegal'. Let me know if you would like a copy by email..

Richard 08.01.2008 14:12

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 152664)
Richard

I doubt there is any 'international agreement' involved here. Its entirely local regulation that the large MNCs negotiated with the steueramt in Zurich canton.

I actually have a copy of the regulation and it clearly describes all tax benefits granted to expatriate specialists as 'illegal'. Let me know if you would like a copy by email..

Yes please I would be very pleased to receive a copy of this...

Richard 08.01.2008 14:18

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 152664)
Richard

I doubt there is any 'international agreement' involved here. Its entirely local regulation that the large MNCs negotiated with the steueramt in Zurich canton.

I actually have a copy of the regulation and it clearly describes all tax benefits granted to expatriate specialists as 'illegal'. Let me know if you would like a copy by email..

This has very little to do with Kanton Zürich unless they have some other additional benefits which would indeed be questionable, but the principle itselt is definitely not illegal. The relevant Swiss law covering this is:
Verordnung vom 3. Oktober 2000 über den Abzug besonderer Berufskosten bei der direkten Bundessteuer von vorübergehend in der Schweiz tätigen leitenden Angestellten, Spezialisten und Spezialistinnen(Expatriates-Verordnung, ExpaV)

And this document is pretty damned clear...

dino 08.01.2008 14:28

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by Richard (Post 152691)
This has very little to do with Kanton Zürich unless they have some other additional benefits which would indeed be questionable, but the principle itselt is definitely not illegal. The relevant Swiss law covering this is:
Verordnung vom 3. Oktober 2000 über den Abzug besonderer Berufskosten bei der direkten Bundessteuer von vorübergehend in der Schweiz tätigen leitenden Angestellten, Spezialisten und Spezialistinnen(Expatriates-Verordnung, ExpaV)

And this document is pretty damned clear...

:)... as is the document dated 23 Oct 2007, that declares the abovementioned law 'illegal' ... copy being mailed to you

Richard 09.01.2008 10:54

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by dino (Post 152693)
:)... as is the document dated 23 Oct 2007, that declares the abovementioned law 'illegal' ... copy being mailed to you

Hi Dino, thanks for sending me the copy.

To summarize what they actually have said. Firstly, that you have no claim which to be honest is correct according to the law. They have also said that their decision is subject to a judicial review. Judicial reviews take an appreciable length of time and therefore the current law on expatriate allowances is not going to disappear any time soon.

And then there is their reasoning which is to be equally honest in parts rather dumb. E contrario...

There are two key points they are basing their argument on along with common court practices but as any judge will tell you cursus curiae est lex curiae ie just because it is practice doesn't make it law. and additionally the practices they are quoting pre-date the law (and indeed some of their quoted additional sources) so it is very questionable as to their relevance so really concentration should be on the principles they are referring to. They are:
1. Equality
2. That tax deductions must be closely related to the job itself.

To the first, while this is not on the face of it, is something right, it is wrong. The argument used is that by providing an advantage to a specific group, in this case expatriates, you are treating them advantageously in comparison to non-expatriates. This cannot be accepted as an argument as if it was then the whole tax system would need to be scrapped ipse dixit.
Fundamental inequality exists per se throughout the Swiss tax system, notably by allowing Gemeinde/Commune to set their own tax rate giving an advantage or disadvantage to its citizens with no means of non-citizens sharing. This is a parallel situation. Furthermore, couples with children enjoy a tax advantage by giving them a deduction(per child) which is not enjoyed by couples without children. Furthermore, a labourer can claim for work clothes, but an office worker cannot claim for a suit (although they are work clothes) etcetera etcetera. Oh and then there is the question of the bilateral agreement with the EU - this goes far too deep to be simply rejected by such argumentation.

2. This is again on the face of it a valid argument and maybe it is even valid. The basis of the ExpaV is that an expatriate is placed at a financial (and personal) disadvantage by providing a service over a short space of time for a company in Switzerland providing he maintains some links to a "home base". While this is also within this decision accepted as a valid point the question of how this is translated into an equalized situation is not. The two key areas that are rebuffed are housing allowance and the school allowance. In what way are they actually directly related to the employment of the ExpaT. Looking at what is said there is a distinct and valid argument that while difficult to deny is also difficult to rule upon q.v. compassionate leave and when is an absence too long? Why then? Take the situation of an expat coming for 6 months. Most people would say that in this situation one parent should stay at home and the other should come here do the job and go home and anyway go home at weekends. Okay but what if home is Japan or Australia and what if they are a single parent. So you cannot rule in such a way and need to accommodate this issue. Work on the principle who would agree to rent for 6 months to someone and at what cost... That given the company needs to rent and there needs to be tax relief for this. But when do you say no more, after 12 months, 2 years or maybe 5 years!!! That a line needs to be drawn in the sand is agreed and the line is currently 5 years. If you agree in principle that a line needs to be drawn you cannot use a principle argument to say it is too far out.

Which then leaves school costs. This is two fold and contradicts in many respects Article 25 of ANAG and Article 53 of the Bundesgesetz über die Ausländerinnen und Ausländer in that, both of these documents promote the integration of foreigners with the provision of financial assistance (what is a tax allowance but that) and additionally that foreigners should not be placed at an unnecessary disadvantage due to, amongst other things, language.

Given the above, it is pretty clear that a pupil coming to Switzerland for a very short duration will be seriously disadvantaged if they are not able to go to an international school that considers their home education system due to lack of financial support and talking of the constitution

The Federal Constitution, which entered into force in 2000, contains a provision on equality and non-discrimination (art. 8). By amending the article of the previous Constitution, which stated that “All Swiss are equal before the law”, article 8, paragraph 1, affirms the equality of all “human beings” before the law. Paragraph 2 of the same article declares that “Nobody shall suffer discrimination, particularly on grounds of origin, race, sex, age, language, social position, lifestyle, religious, philosophical or political convictions, or because of a physical or mental disability.”

Given that the constitution supercedes all other laws (exception, certain international laws) and that not providing some form of support would be discrimination based on the above highlighted points, their argument that this would be a conflict of the same article is nonsense.

In any case, something that is clearly of good news to all foreigners currently sweating about the aforementioned decision by the tax appeals commission, there is the fundamental principle of ex post facto which basically states that you cannot repeal an existing law and penalise someone retrospectively. Hence while Dino never met the basic principles of ExpaV those that do cannot be penalised ie tax advantages cannot be withheld until such times as the ExpaV is repealed.

In short the decision as founded asks fundamental questions that go to the very heart of Switzerlands policies on foreigners - perhaps the authors of this decision are not aware of the change in Article 8 of the constitution that all human beings also now includes non-Swiss citizens...

Shorrick Mk2 09.01.2008 11:01

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by Richard (Post 153057)

The Federal Constitution, which entered into force in 2000, contains a provision on equality and non-discrimination (art. 8). By amending the article of the previous Constitution, which stated that “All Swiss are equal before the law”, article 8, paragraph 1, affirms the equality of all “human beings” before the law. Paragraph 2 of the same article declares that “Nobody shall suffer discrimination, particularly on grounds of origin, race, sex, age, language, social position, lifestyle, religious, philosophical or political convictions, or because of a physical or mental disability.”



Could one argue that the ANAG and the up-and-coming AusG discriminate on grounds of origin (i.e. access to employment) ?

Richard 09.01.2008 14:19

Re: End of the 'expat' benefits ??
 
Quote:

Originally Posted by Shorrick Mk2 (Post 153064)
Could one argue that the ANAG and the up-and-coming AusG discriminate on grounds of origin (i.e. access to employment) ?[/left]

To be honest yes. That is one of the reasons why I think the tax appeals commission have opened a real can of worms with their "thought through" reasoning. If you actually follow what they have said and published on the Zurich tax website they are quoting old laws to show precedents therefore questioning the validity of the new law. And on top of that selectively using articles in substantive law that while on one side supports their claims, contain further paragraphs or interpretations which shoot their argument into flames. Dumb I must say...


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