Tax evasion in Switzerland

Taxes in Switzerland are levied by the Swiss Confederation, the cantons and the municipalities.

Switzerland is a federal republic in which the sovereignty of the constituent states (the cantons) is limited by the enumerated powers delegated to the federal state (the Confederation) through the federal constitution. Consequently, the original authority to levy taxes is vested in the individual cantons of Switzerland through their constitutions. Within the bounds of the authority delegated to them by cantonal law, the municipalities may also levy taxes. The extent of that authority varies from canton to canton. While the formal framework of the most important cantonal direct taxes has been harmonised through the 1990 Federal Tax Harmonisation Law, the cantons (and, as the case may be, the municipalities) remain free to set their tax rates or establish new taxes, except on tax objects already taxed under federal law.

Since World War II, the federal constitution authorizes the Confederation to levy a number of taxes, the most significant of which are an income tax, a withholding tax and a value added tax. However, Switzerland is unique among modern sovereign states in that the authority to levy these taxes is limited in duration and extent. The Constitution imposes an upper limit on the federal tax rates and causes the federal authority to levy taxes to expire in 2020. A renewal of that authority requires a constitutional amendment, which must be approved in a popular referendum by both a majority of the popular vote and the cantons. If that renewal is not approved at the polls (as it has been six times since 1958), the Confederation itself will conceivably dissolve for lack of funds. All attempts to remove this limitation by amending the constitution to provide for a permanent federal authority to levy taxes have been rejected in Parliament or – no less than five times – by popular vote, most recently in 1991.

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