The Swiss finance minister, Kaspar Villiger, has proposed extending a withholding tax on accounts held by European Union citizens in Swiss banks. The proposal is part of efforts to find a way to combat tax evasion and forge closer ties between Switzerland and the EU.

The EU finance commissioner, Frits Bolkestein, described the proposal as a big step forward. He made the statement in Bern on Tuesday, following talks with Villiger.

Bolkestein said Switzerland and the EU shared a common interest in cracking down on citizens trying to dodge taxes by stashing funds away in offshore accounts, including Switzerland. He also said it was important to keep Europe's financial centres competitive.

Under the proposal, which still needs government approval, Switzerland would be willing to raise the tax for a transition period up to 2010.

Brussels is planning to streamline tax levels within the 15-member bloc and other countries, including the United States, Switzerland, Liechtenstein, as well as three other small European countries that are important financial centres.

It foresees either a free exchange of information among tax collectors, which means effectively lifting banking secrecy, or the introduction of a withholding tax on savings and bonds.

Villiger said his proposal, which has been known for some time, was conditional on a solution with other offshore centres. He repeated Switzerland was not willing to lift its traditional banking secrecy.

The exploratory talks between Villiger and Bolkestein came ahead of negotiations on a planned second set of bilateral accords between Switzerland and the EU.

The Swiss government has announced it intends to negotiate 10 new agreements, including closer cooperation on asylum and police, as well as education, media, statistics and processed agricultural goods.

It also signalled its willingness to reach an agreement with the EU on combating customs fraud, in particular cigarette smuggling via Switzerland.

The Swiss cabinet still has to finalise its mandate for the negotiations. Last week it said it envisages a three-gear approach for the formal discussions with Brussels. Talks on tax evasion are unlikely to begin before autumn.

A first set of bilateral accords, including the free movement of people, transport and agriculture, was approved by Swiss voters in May 2000. But they have not yet taken effect because of delays in the ratification process in EU member states.

swissinfo with agencies

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