Amended Swiss-German withholding tax deal seems certain to go ahead

02 April 2012

Germany has declared a "clear intention" to sign the Swiss proposals on their controversial bilateral withholding tax agreement, due to come into effect early next year.

The Swiss government announced Germany's undertaking on Friday, in an attempt to quell media reports that the agreement was about to be sabotaged by German opposition parties.

The original draft agreement, signed last summer, obliges Swiss banks to impose a 26 per cent withholding tax on payments to their German clients, with the proceeds being forwarded to the German tax authorities. Swiss banks would also impose retrospective charges on their long-term German clients to recover historical unpaid taxes.

However, German opposition parties, particularly the Social Democrats, did not like the agreement. Their objections included the relatively low level of the withholding tax, as well as various "loopholes". They have threatened to block its ratification in the Bundesrat (the upper house of Germany's parliament).

Earlier this year Switzerland offered to amend the agreement. The exact nature of its concessions have not been published yet, but appear to relate to the calculation of a lump-sum charge to settle German clients' historical tax liabilities. The calculation will now take the form of a tax on the capital stock. "This lump-sum solution is linked to a fair tax burden and on the whole will lead to an equitable burden that is materially comparable with that of investors who were already tax-compliant", said the Swiss Federal Finance Ministry in a statement. The statement did not mention any increases to the withholding tax rate, but the Swiss daily newspaper Tages-Anzeiger claims it will be raised to 29 per cent - still far below Germany's own 35 per cent rate.

The Swiss gave the German government a 31 March deadline to decide whether it would accept the changes or withdraw. On Friday the German government - Angela Merkel's centre-right coalition - formally declared its clear intention to sign the proposals.

The agreement requires the approval of parliament in both countries. President Eveline Widmer-Schlumpf will now submit the question of signing to the Federal Council. If the Bundesrat also approves, the tax deal should begin operation on 1 January 2013.

• In an apparently unrelated development, Swiss prosecutors have issued warrants for the arrest of three German tax inspectors. The three are accused of industrial espionage - specifically, buying a CD containing bank client data stolen from Credit Suisse in Zurich. Switzerland's attorney general says he has "concrete suspicion" that the German state of North Rhine-Westphalia instigated the theft, which led to the investigation of hundreds of German taxpayers with undeclared Swiss accounts.

 

Sources

Swiss Federal Department of Finance

Reuters 

Reuters (2)

Swissinfo

Reuters (3)

Dow Jones

 

 


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