Swiss banks play down German tax amnesty

Swiss banks were not rattled by Gerhard Schröder's tax amnesty plan Keystone

Swiss banks are playing down the likely impact of a German tax amnesty aimed at encouraging Germans to repatriate funds held abroad.

Switzerland’s banks weathered a similar amnesty for Italians after depositors repatriating funds simply transferred their money to Swiss banks’ branches in Italy.

The German chancellor, Gerhard Schröder, confirmed the amnesty on Monday, saying it would be introduced next year. “We want to allow those who have not been honest a way back into the system,” he said.

But it won’t be cheap to bring money home. Under the proposal, repatriated funds would be subject to a 25 per cent flat tax in 2003. This would go up to 35 per cent from January to June 2004.

Once the law is passed by parliament, it will be backdated to January 2003.

Schröder said it was realistic to expect that about €100 billion would be brought home, leading to a windfall of €25 billion to be shared among the federal government, states and local communities.

Savings income from the repatriated funds would thereafter be subject to a withholding tax of 25 per cent. The level is considerably lower than Germany’s current highest tax rate, which can reach 48.5 per cent.

Germans are estimated to have about €300 billion in banks abroad, about €100 billion of which is stashed in Switzerland.

Negative impact

Swiss analysts said the German move would have a “negative impact” on Swiss banks, but added that the high tax on repatriated funds would discourage many Germans from taking advantage of the amnesty.

Claude Zehnder, head of brokerage research at Zurich Cantonal Bank, told swissinfo that much of the money repatriated to Germany would likely wind up in Swiss banks’ branches in that country.

“We have seen with the Italian amnesty that Swiss banks – especially the big ones – gained some of the money back in their branches in Italy. So all in all the impact should not be that negative for Swiss banks.”

Switzerland’s two biggest banks, UBS and Credit Suisse, saw outflows of SFr15.2 billion and SFr3.3 billion respectively as a result of the Italian tax amnesty.

The amnesty attracted some SFr44 billion from Switzerland, half of which was captured through the banks’ Italian branches, they say.

Both banks should be well placed to capture funds repatriated to Germany; UBS has eight branches and Credit Suisse 15 offering private banking services to wealthy clients.

“Germany is one of our five core markets and it is the one where we see the most potential because it is the biggest economy,” said UBS spokesman, Christoph Meier.

“Savers’ rattled”

The Swiss Bankers Association also played down the likely impact of the amnesty. “Germany’s tax policy seems to change on the hour, every hour,” said spokesman James Nason.

“We have heard from banks that the German saver is rather rattled in terms of the future and there is a lot of instability about. In times like these you seek a safe place for your hard-earned currency.”

The German amnesty was announced a week after European Union finance ministers failed to agree a common policy aimed at combating tax evasion for the Union’s 15 member states.

Brussels had been hoping member states would agree to automatically exchange information on EU citizens’ savings in other members’ banks.

Blaming Switzerland

Some ministers – notably from Austria and Luxembourg – blamed Switzerland for the impasse, saying they could not give way on banking secrecy unless Bern did so too – something the Swiss have resolutely refused to do.

The failure of that meeting means pressure on the Swiss to compromise on banking secrecy is likely to continue.

Correspondents say the German proposal may therefore be more attractive than Swiss banks think, particularly if Germans believe that Switzerland will eventually have to scrap banking secrecy.

Germany’s tax proposal, with a 25 per cent withholding tax, is almost identical to the Swiss counter-offer, which is to levy a 35 per cent withholding tax on EU citizens’ savings in Swiss banks.

swissinfo

In brief

Swiss banks are playing down the likely effects of a German tax amnesty.

The amnesty aims at encouraging Germans to repatriate money held abroad, mostly in Switzerland and Luxembourg.

Swiss analysts said that the high tax rate – at 25 per cent – could discourage Germans from withdrawing their money from Switzerland.

An Italian tax amnesty with similar aims was put into force in 2001 – resulting in outflows of SFr44 billion from Switzerland.

Swiss banks were able to capture about half of that capital back through their Italian branches.

Key facts

Wealth management is a SFr3.4 trillion industry in Switzerland. About SFr2 trillion of these funds are held by foreign clients.
Germans have an estimated €300 billion in foreign accounts, mostly in Switzerland and Luxembourg.
Switzerland’s biggest bank, UBS, saw outflows of SFr15.2 billion from an Italian tax amnesty.