Have you ever wondered why Switzerland doesn’t have a Grand Prix on the F1 circuit? Is it because of the mountains or the weather? Probably not! Is it because it is a tax haven, perhaps, if so why do they have a Monaco Grand Prix then? Isn’t that a tax haven too? The simple truth is not all tax havens are the same!
Tougher than Monaco
In Monaco generally there is no direct tax on individuals (unless you are a French national). So earnings from Grand Prix in Monaco don’t incur tax charges to the F1 drivers who live in Monaco. But in Switzerland the tax system is very different.
Firstly there are two levels of individual taxation, Federal (national) and Canton (regional). The Canton tax rates vary and generally the tax rate is higher for the more desirable areas of the country. Generally tax is due on residents of Switzerland on their worldwide income. However, there are a number of exemptions still in force in some of the Cantons; one of which is well used by F1 drivers.
More advantageous than DRS (drag reduction system)?
This is called “forfait” (flat-rate). One of the facets of the Swiss tax system is that in addition to bringing all income received into account for a given tax year, it also bring in a notional income based upon the rent the individual pays for the property they reside in, or an annual rental value if they own the property. It might be seen to be comparable to the UK council tax charge, however this is integrated into the income tax system rather than a separate tax.
If you claim forfait, you elect to be liable to tax not on your worldwide income but instead only upon a flat rate of tax, five, seven or ten times (depending on the Canton) the notional income from the property. For a F1 driver who has vast worldwide income throughout the course of a F1 season the forfait charge will be a very modest amount upon which to pay tax.
But wasn’t the question why isn’t there a Swiss Grand Prix? Well one of the criteria for being able to use the forfait system is that you cannot have any commercial activities within Switzerland. So if they had a Swiss GP then all those drivers living in Switzerland would be unable to claim forfait and would have to pay tax on their worldwide income.
Black Flag for Forfait?
Many Cantons have abolished the concept of Forfait and there is significant additional pressure for the rest to follow suit. Perhaps they might have been more careful to name the forfait exemption as in Old French forfait means crime or offence!