European Union finance ministers have finally hammered out a tax accord which paves the way for EU citizens' savings income in Switzerland to be taxed.This content was published on June 4, 2003 - 12:17
The Swiss have already made clear they are prepared to transfer a levy on EU citizens' investment income to Brussels, provided banking secrecy is upheld.
The Swiss proposal would leave the country's cherished banking secrecy intact because no information about account holders would be handed over without their consent.
A deal between Bern and Brussels is likely to be reached now that EU members have agreed to a "savings tax directive".
When it comes into force - on January 1, 2005 - EU countries will share information on savings held by non-residents so they can be taxed accordingly.
The directive is aimed at stamping out tax evasion and preventing money laundering and fraud.
EU finance ministers finally struck a deal on Tuesday after nearly 14 years of deadlock.
The breakthrough came after Italy agreed to drop its opposition in exchange for concessions on the unrelated issue of milk quotas.
The Swiss finance ministry, responding to Tuesday's decision, said that the European decision was proof that Switzerland's position on the taxation of savings was fair.
The Swiss Bankers' Association (SBA) and the country's business federation, economiesuisse, also welcomed the development.
For the SBA, it was important that banking secrecy had emerged unscathed from the discussions.
economiesuisse said the agreement was an important step for Swiss-EU relations, especially for the negotiation of further bilateral accords.
Non-EU members - so-called third countries, such as Switzerland - are now expected to comply with the new rules or face possible sanctions.
The Swiss have long insisted that they will not sign up to any agreement involving the automatic exchange of information, despite heavy diplomatic pressure from the EU. Last year, Brussels threatened Bern with sanctions if it did not comply.
But divisions over the issue among EU states themselves forced a compromise, which worked to the Swiss advantage.
Three EU states - Belgium, Luxembourg and Austria, which have banking secrecy rules of their own - refused to sign up to the directive unless the Swiss did so too.
After much haggling, the three were granted exemptions, and will now not have to exchange information but instead levy a withholding tax on non-residents' savings income.
Last March, the Swiss finance minister, Kaspar Villiger, told EU commissioner, Frits Bolkestein, that Switzerland was prepared to implement a similar withholding tax system.
The tax would be increased gradually to 35 per cent by 2011, with 75 per cent of the funds being transferred to the EU.
Overseas account holders would be given the choice of declaring their assets in Switzerland or remaining anonymous and having 35 per cent of their savings income deducted from their accounts.
But before Switzerland signs up to the directive, it is likely to demand concessions from Brussels on a number of tax issues.
Villiger said in March that Bern wants a tax exemption for transfers of dividends, interest payments and licence fees between Swiss company headquarters and their units in the EU.
He added that this would place Swiss firms on an equal footing with their EU counterparts as far as tax breaks are concerned.
Bern might also seek to make a deal conditional on bringing a speedy conclusion to negotiations on a series of bilateral agreements on issues such as migration and asylum.
swissinfo, Jonas Hughes
The Swiss government has long maintained that it will not negotiate over banking secrecy.
Switzerland's financial sector accounts for over 12 per cent of the gross domestic product.
Swiss banks generated SFr11.9 billion in net profits in 2002.
The country manages about 35 per cent of the world's private and international offshore funds, estimated at $2 trillion (SFr2.89 trillion).
An agreement between Bern and Brussels on savings taxation is likely to be reached now that EU members have struck a deal.
The Swiss won't go so far as to exchange information but may agree to levy a withholding tax on EU citizen's savings income, and transfer the money to Brussels.
Bern is expected to demand a tax exemption for transfers of dividends, interest payments and license fees between Swiss company headquarters and their units in the EU.
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