DON’T SOW DOUBT ABOUT THE TAX LOOPHOLE BEING CLOSED – THEN THE EXODUS MIGHT SLOW DOWN
The influx of rich Norwegians into Switzerland is increasing. New calculations clearly show that this is about exploiting a tax loophole to avoid paying the bill for deferred income tax.
The Government recently decided that it will no longer be possible to return to Norway after five years and have outstanding tax written off. However, the exodus will likely continue until the opposition parties also make it clear that the tax loophole will remain closed.
When the government put forward the proposal to close the tax loophole by changing what is known as the five-year rule, they were criticised by parties on the political right for scaring capital out of the country. When the political right sows doubt about this exodus being about exploiting a tax loophole, this could lead to more people emigrating. It must be tempting, of course, for business owners who hear such statements – from what is now Norway’s largest political party – to move money to Switzerland now and gamble on the Conservative Party later postponing or dropping the abolition of the five-year rule.
If it was the government's increased wealth tax that was the main motivation for this exodus, we would think those who have emigrated to be more impacted by this than others, but that is not the case. The financial newspaper Finansavisen has uncovered a ‘monster discount for the richest’, whereby they pay wealth tax on a lower amount than their estimated true wealth.
I have carried out an analysis that shows that the rich who move to Switzerland receive, on average, a ‘monster discount’ of about 70 per cent of their wealth. I have calculated this by comparing the public tax-assessment figures with Kapital's list of the expatriates’ true wealth. This is actually a bigger discount than the wealthiest people who remain in Norway get, which suggests that, paradoxically, the expatriates may be less affected by wealth tax than other rich individuals.
The deferred tax bill for the wealthiest is huge, however. My calculations suggest that Norway will lose out on more than NOK 250 billion in income tax if the rest of the super-rich also move their money to Switzerland. By comparison, this deferred tax bill is more than 65 times larger than the state's anticipated annual income from the tax on salmon.
It has long been known that a five-year sojourn in Switzerland can lead to your tax bill being written off, but, since this only applies to previous tax bills, there is no point in moving too early. So, for business owners who want to minimise their taxes, the smart move was to defer the tax bill up until someone suggested closing the tax loophole, and then move to Switzerland.
Rather than claiming that it’s the government that is scaring capital out of Norway, it could be argued that it is the opposition that is pushing capital out of the country by keeping open the possibility that tax bills can continue to be written off if you emigrate.
There’s no need, however, to treat these expats as immoral – they are simply accepting a gift horse from the state. Kjell Inge Røkke could choose between paying NOK 10 billion in taxes to Norway or moving to Switzerland. If he believes the state is going to waste his tax money on paying pandemic support to Petter Stordalen, or on paying energy support to Asia's richest man, it is understandable that he wants to retain control of his wealth and spend a little of his money on good causes instead.
We need all responsible political parties to be open about – or learn that – moving income to Switzerland is a tax loophole that must remain closed. The discussion about tax can then be about what the right level of wealth tax is.
That is something about which at least the political right has some good arguments.