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“The concept of a withholding tax has failed”

Red light: the German flag of the German parliament and the national flag of Switzerland on top of the Swiss embassy in Berlin Keystone

Most Swiss newspapers have given the last rites to the withholding tax model, following the “no” from the German upper house of parliament to a tax treaty aimed at legalising undeclared assets held by Germans in Swiss banks.

Only the Neue Zürcher Zeitung (NZZ) still had faith in the “ingenious withholding tax system”.

Switzerland had done its homework, the paper said, and developed a suitable tax model – “it’s therefore worthwhile to fight for such a solution”. It pointed out that Britain and Austria, with whom Switzerland had signed similar agreements which are set to come into force on January 1, considered this approach purposeful.

Nevertheless, the NZZ said it was clear that “for the time being the meaningful construct of a withholding tax remained built on sand” and that the foundations of the agreement with Britain and Austria “couldn’t take a lot of weight”.

On Friday, the opposition German Social Democrats (SPD) and the Greens voted against the agreement with Switzerland, saying it had too many loopholes and that it went against tax equity.

A mediation committee of the two chambers of parliament is expected to meet next month to thrash out a compromise, in a bid to pave the way for the accord to take effect from January 2013.

“Time for a change”

The Basler Zeitung feared that if the accord failed for good, Britain and Austria could also bale out, which would result in “the introduction of efforts coordinated across Europe for the automatic exchange of information”.

For the Tages-Anzeiger in Zurich, it was therefore “time for a change in strategy”.

“The concept of a withholding tax has failed,” it said. “The Swiss model doesn’t work abroad. On the contrary, Switzerland will soon sign an agreement with the United States that foresees a sort of one-sided exchange of data.”

The accord with Germany, already approved by Switzerland, would impose a retroactive levy of up to 41 per cent on capital in offshore bank accounts held by foreign citizens, impose a tax on future interest income and allow the account holders to remain anonymous.
The German government estimates revenue from tax arrears under the deal at €10 billion ($12.9 billion) and an additional €700 million annually from withholding tax, but the opposition dismissed the figures as exaggerated.
So what to do? For the Tages-Anzeiger, “Switzerland should start negotiating as soon as possible a tax amnesty for the past and an automatic exchange of information for the future”.

The Südostschweiz also believed that the “withholding path would no longer lead very far. The signs are pointing to the automatic exchange of information”.

Blame game

The Südostschweiz lay the blame for the failure with the Swiss government, which “not only misjudged the mental state of Germans, but also [the Swiss government’s] ignorance meant it had missed chances to get the most out of the situation in its own interest”.

For the St Galler Tagblatt, however, “at first glance Germany is the loser”, pointing to the billions it will miss out on given the statute of limitation concerning tax evasion.

Der Bund in Bern said the SPD was playing high-stakes poker. “[The SPD] wants the automatic exchange of information. Germany might get this in ten years, but in the short term it can’t force its southern neighbour to hand over every piece of information on the investments of German citizens. For the moment, a withholding tax is the best solution.”

For the Berner Zeitung, the SPD and the Greens had “to a marked extent built up the issue as one of justice. In the Swiss banks, politicians of these two parties had the perfect villains which they could lay into – an electorally rewarding strategy. In such an environment, the agreement could only fail.”


Most papers in the French-speaking part of the country were also doubtful for the future of the withholding tax.

“The time has come for Plan B,” reckoned Le Temps in Geneva, adding that this officially didn’t exist. “During the negotiations this attitude made sense – now it doesn’t.”

La Tribune de Genève was a bit more optimistic. “Yes, this is a loud warning shot, but Germany isn’t the only country involved. The agreement with Britain and Austria enters into effect on January 1,” it reminded readers.

Le Quotidien Jurassien balanced out this optimism, saying German politicians had squeezed as much capital out of the controversy as possible.

“Bern and Berlin continue to believe in a mediation committee miracle, but in the current political climate before the elections [in Germany next autumn], such a miracle is an illusion.”

March 13, 2009: Following pressure from the Organisation for Economic Co-operation and Development (OECD), the Swiss government agrees to adopt OECD standards on administrative assistance in tax matters. By doing so, Switzerland agreed to offer assistance not only in cases on tax fraud, but also in some cases of evasion.

June 2009: Swiss and German finance ministers agree on revisions to the double taxation treaty between the two countries.

September 2011: Swiss Finance Minister Eveline Widmer-Schlumpf and her current German counterpart Wolfgang Schäuble sign a Rubik withholding tax agreement in Berlin.  

March  2012: The European Commission warn that the Rubik treaties with both Germany and Britain contained elements that violated EU rules and in particular clashed with an existing withholding tax agreement between the EU and Switzerland.

April 5 2012: Switzerland and Germany revise their deal including a provision to increase tax rates on undeclared legacy assets.

April 17 2012: The EC gives the revised deals with Germany and Britain (which was also altered to meet objections) the green light.


April 2012: The German government approves the revised deal, but the SPD and Green parties say they will fight against its implementation.

June 2012: Following a positive vote in the Swiss Senate, the House of Representatives passes the treaty. However, a rightwing and a leftwing group launch a referendum to bring the deal down, yet fail to collect enough signatures for a nationwide ballot.

November 2012: Germany’s upper house of parliament rejects the accord. The lower house had given it the green light in October.

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR