Swiss hope tax deal with Germany sets example

The accord is aimed at ending years of disagreement over tax issues between the two countries Keystone

Switzerland and Germany have agreed on a revamped tax agreement amid tension between the two neighbouring countries over fiscal evasion and banking secrecy.

This content was published on April 5, 2012 minutes

Germany hopes the accord will generate billion of euros in tax revenues, while the Swiss government praised it as a model for agreements with other countries.

The deal, still to be ratified by the parliaments of both countries, comes after criticism by the European Union and stonewalling by opposition parties in Germany.

Under the terms of the modifications, Switzerland will impose an income tax on German assets in Swiss banks of between 21 and 41 per cent, raising by seven per cent the maximum rate initially agreed last September.

The amended accord foresees a 50 per cent tax on inherited assets as well as a maximum of 1,300 requests for legal assistance – instead of 999 requests – for a two-year period after the deal’s implementation, planned for the beginning of 2013.

Both sides also agreed to shorten a deadline for German bank clients to move their assets out of Switzerland without notifying the German tax authorities.

The accord was signed by the Swiss finance ministry’s secretary of state Michael Ambühl, and Germany’s ambassador to Switzerland, Peter Gottwald, on Thursday.

Fair compromise

Finance Minister Eveline Widmer-Schlumpf told a news conference that the agreement was a fair compromise, but the key Swiss demand remained unaltered between the initial accord and the amended deal.

“We did and will insist on the protection of the private sphere of bank clients,” she said.

She added that Switzerland agreed to German demands on enforcing its fiscal claims.

In a written statement, Widmer-Schlumpf said the deal gave proof of Switzerland’s efforts to get away from the reputation as a tax haven for undeclared funds. She added that the accord could serve as a model for further agreements with other countries.

“Our partner countries should take note that we are serious and will implement our announcements concerning a financial centre of integrity. Foreign investors in Switzerland should be taxed at the rates in their countries of residence.”

She said the agreed system was more practical than an exchange of huge amounts of hard-to-handle tax data.

“I am confident that this system will bring benefits as soon as it enters into force. I am also confident that other states will recognise this and will arrange agreements with Switzerland,” Widmer-Schlumpf said.

As part of the deal Swiss finance institutes would be given easier access to the German market.

Mixed reaction

The main political parties in Switzerland gave mixed signals.

The centre-right generally approved the deal, while the rightwing Swiss People’s Party said the government had given in too much, while the centre-left Social Democrats and the Greens called for the introduction of an automatic exchange of information on foreign bank client data.

The Swiss Bankers Association said the accord was well balanced but it ruled out any further compromise.

In Germany, Finance Minister Wolfgang Schäuble described the modified deal as fair, according to a statement published by the German embassy to Switzerland.

However, the Social Democratic Party's leader Sigmar Gabriel reiterated the centre-left opposition would continue to block ratification of the agreement in Germany’s Upper House of parliament.

Stolen CDs

The accord comes amid tensions between Switzerland and its most important trading partner.

Last month, the Swiss justice authorities issued an arrest warrant for three German tax investigators for violating banking secrecy laws. The three officials were involved in the purchase of a compact disc containing confidential data about German clients of the Credit Suisse bank suspected of tax evasion.

The German government has expressed understanding for the Swiss warrants, but a tabloid newspaper announced it has filed a complaint against the Swiss justice minister over the issue.

The Swiss finance minister said on Thursday such legal action could not be taken seriously.

The deal with Germany bans future trade in stolen bank data, according to Widmer-Schlumpf.

Britain, Austria, Greece

Her comment came as the Swiss government agreed to seek tax accords with Austria and Greece.

However, attempts to launch talks with two major European countries, France and Italy, on tax issues appear to be blocked for the moment.

Last month, Widmer-Schlumpf and her British counterpart, George Osborne, signed an agreement to begin taxing funds held by wealthy British clients of Swiss banks from next January.

Both sides agreed to modifying the terms of a withholding tax deal, signed last August to appease the European Commission.

The commission said on Thursday it would examine if the accord accepted by the Swiss and Germans respected EU legislation, echoing earlier concerns about the previous version of the accord signed last year.

The EU has been pressing for an automatic exchange of information between member countries, but several countries have come out against the proposal.

Switzerland is not a member of the EU, but the 27-nation bloc is its main trading partner, and has negotiated more than 120 bilateral agreements with it, including the 2004 treaty on withholding tax, also referred to as the taxation of savings accord – at a rate of 35 per cent.

Big deal

The Swiss-German tax accord foresees that existing funds in Swiss banks will be taxed at a rate of between 21-41%, slightly up on an initial deal agreed last September.

Future investment income and capital gains will be taxed at 26.4%.

Inherited assets in Switzerland will be taxed at a rate of 50% if the holder wants an account to remain anonymous.

German opposition parties refused to agree, saying the treaty was too soft on tax evaders who had stashed an estimated SFr150 billion ($163 billion) in secret accounts.

Swiss banks will pay SFr2 billion up front to Germany within 25 days of the deal being ratified. A provision prevents tax dodgers from moving their funds to another safe haven.

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The Swiss parliament is due to discuss the tax agreement with Germany in its regular June session.

The deal is to take effect at the beginning of January 2013, ending years of disagreements with Germany over tax issues.

The German parliament is due to discuss it in the summer.

The EU has agreed to the deal according to the Swiss finance ministry. But the 27-nation bloc insists on the automatic exchange of bank data.

In March, Switzerland and Britain agreed an amended tax accord which is largely similar to the deal with Germany.

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