The French have been eyeing certain circumstances under which they have been losing out on inheritance tax to the Swiss tax authorities and have decided to push to change applicable regulations.

When a French resident inherits from a Swiss resident, the current rules say that, save for an inheritance of French real estate, any inheritance tax due is payable to the Swiss rather than the French tax authorities.

But the Swiss are also benefiting when French real estate is transferred. In order to get around the requirement for heirs to pay inheritance tax on the transfer of French real estate, property owners are transferring the property to a property company, which issues shares in return.

Upon death of the Swiss resident owner, shares instead of real estate are transferred with two consequences: first, because the asset is now shares and not property, any inheritance tax due is payable in Switzerland rather than France, and second, the inheritance tax due in Switzerland is considerably lower than it would be in France.

The French have had enough of this situation and are exerting considerable pressure, with the threat of a refusal to enter into a double tax treaty with Switzerland hanging over the negotiations.

“If France makes good its threat and terminates the double taxation agreement wealthy Frenchman will move out of Switzerland, because they do not want to pay taxes in each country and be taxed twice. The western Swiss cantons would be particularly affected,” said Christian Wanner, of the Conference of Cantonal Finance Directors.

Swiss Finance Minister, Eveline Widmer-Schlumpf has said that the French are expecting more than the Swiss are willing to give. She is scheduled to meet French president Francois Hollande in two months’ time. In the meantime, the double tax treaty is set to go before Parliament.