On 13 December 2024, the Federal Council published its report on the Young Socialists’ initiative ‘For a social climate policy – fairly financed through taxation’. The Federal Council confirmed its previous position by rejecting the initiative without a direct or indirect counterproposal. The fact that the Federal Council has not declared the initiative (partially) invalid despite the harmful retroactive effect is hardly surprising – but nevertheless disappointing. Accordingly, the initiative will be put to a vote by the people and the cantons. On the other hand, the reaffirmation of the statement that an exit tax is ruled out is pleasing. Premature relocations abroad are therefore not necessary.
Demands of the inheritance tax initiative
With this initiative, the Young Socialists are calling for the introduction of a gift and inheritance tax at federal level with a tax rate of 50%. A one-off tax-free amount of CHF 50 million should apply to the sum of the estate and all gifts. There are no exemptions for spouses or direct descendants, for example, or for the transfer of family businesses or donations to charitable organisations. The tax revenue is earmarked and is to be used for climate protection measures.
In order to prevent tax avoidance, the Young Socialists also wanted to implicitly introduce an exit tax that would have applied from the day of the vote.
Report from the Federal Council
Although the Federal Council repeatedly emphasises that the retroactive taxation of inheritances and gifts called for by the initiative is problematic in terms of state policy, there is no reason for the initiative to be (partially) invalidated.
The Federal Council clarifies that the retroactive effect only applies to inheritances and gifts actually paid out following the possible adoption of the popular initiative. The planned implementing provisions to combat tax avoidance – and therefore also an exit tax – however, can only be applied from the time they come into force (and therefore not retroactively).
In other words, this means that estates and gifts that are made or paid after the possible adoption of the popular initiative by persons who are resident in Switzerland at the time of death or gift will be subject to tax. On the other hand, the measures required by the initiative to prevent tax avoidance would only apply once the corresponding implementing provisions have come into force. These would have to be issued by the legislator no later than three years after the adoption of the initiative. Accordingly, a move abroad can also take place after the day of the vote until the implementing provisions come into force. Since the creation of a corresponding federal law within three years would be unlikely, it would depend on the existence of the Federal Council ordinance. It is currently not possible to make a forecast in this regard.
With regard to moving abroad, the Federal Council also states that such a move should not simply be qualified as tax avoidance and penalised with tax consequences. Rather, an additional act aimed at tax avoidance is required, such as a prompt gifting after the departure. In such a case, a five-year fiction of tax residence would be possible, for example, whereby gifts would still be recognised for tax purposes for five years after moving away.
Referring to a report by the University of Lausanne, the Federal Council points out that the initiative could lead to a significant reduction in tax revenue, as most of the tax base could move out of Switzerland if the initiative is adopted. This would not only mean that the potential inheritance and gift taxes hoped for by the Young Socialists would largely disappear, but there would also be a loss of income and wealth tax.
The Federal Council further points out that the initiative is also not expedient from a climate policy perspective and that the actual purpose of the initiative – namely the climate policy concerns of the initiators – would be missed. On the one hand, there is already an active Swiss climate policy and, on the other, the initiative would create false incentives by focusing only on the wealthiest part of the population, while creating no incentives for climate-friendly behaviour across the board.
The Federal Council concludes that the proposed federal inheritance and gift tax and the proposed earmarking for climate policy are problematic and inappropriate in several respects. It therefore rejects the initiative. The implementing provisions of the Federal Council (ordinance) are still pending.
The initiative will be put to a vote by the people and the cantons at the end of 2025 at the earliest, but more likely in the first half of 2026.
The Federal Council’s press release and the full report can be found here: Bundesrat verabschiedet Botschaft zur Volksinitiative «Für eine soziale Klimapolitik – steuerlich gerecht finanziert (Initiative für eine Zukunft)»