Swiss-German withholding tax deal is signed
11th August 2011
Switzerland and Germany have signed an
agreement under which interest paid by Swiss banks to their German
clients will be taxed at source.
The withholding tax is set at 26.375 per cent
for investment income and capital gains, as from January 2013. This
is in line with the 25 per cent German tax rate, plus a "solidarity
surcharge".
Undeclared payments made to German taxpayers
in previous years will be taxed retrospectively at between 19 and
34 per cent of the client's Swiss assets, depending on the initial
and final amount of the capital and the length of time it has been
concealed. The Swiss Bankers' Association (SBA) estimated that most
of their clients will pay an effective tax rate of 20-25 per cent
of total assets.
Income thus taxed will be exempt from German
taxation, and clients will remain anonymous - even those who choose
to make lump-sum tax payments to the German authorities to settle
their historical tax liabilities.
But the Swiss banks will collectively pay a
SFr2 billion up-front guarantee, in case the deal causes a flight
of German funds from Switzerland before coming into force. This
amount will be offset against actual regularising payments made by
clients. German clients who refuse to make regularising payments by
31 May 2013 will have their accounts closed.
The two countries announced their intention of
negotiating the deal last autumn. It has taken many months to reach
agreement, with the amount of the Swiss banks' surety being one of
the sticking points.
Another contentious issue was the German
authorities' powers to monitor enforcement of the withholding tax.
The Swiss have agreed to comply with a limited number of requests
for information about named German taxpayers. Up to a thousand such
requests will be honoured in the first two years of the agreement.
As always, the Swiss insist that "fishing expeditions are not
permissible", so each request will have to have "plausible
grounds"; though the German authorities will not need to know which
bank the taxpayer is using.
There are two other areas of disagreement
that, according to the Swiss Federal Department of Finance, have
been resolved, but the solutions have not been publicly disclosed.
The first is the German tax authorities' habit of purchasing stolen
Swiss banking data; the German authorities have now agreed not to
use stolen data in proceedings against Swiss banks or their
employees. The second issue is the prosecution of bank
employees for past acts of abetting tax evasion. The SBA said the
agreement "provides for ... decriminalisation of banks and their
employees"; which presumably means a general amnesty.
In return, Switzerland obtained some minor
concessions on access to German financial markets. Swiss banks
operating in Germany will no longer have to recruit new clients via
a local institution, and the exemption procedure will be
simplified.
The SBA described the agreement as "positive
overall" and satisfactory for clients. "Protection of financial
privacy remains intact for clients who are tax compliant", it said,
while stressing that the measures will cost banks something of the
order of SFr500 million.
It also welcomed Germany's acceptance that
withholding tax is equivalent to the automatic exchange of
information. "The EU proponents of an automatic exchange of
information will now have a less ideological position on this
issue", it said.
Prospects for revision of the European Savings
Tax Directive, which the European Commission has been canvassing
for several years, were weakened by the deal. The Luxembourg
Bankers' Association issued a statement claiming that the
Swiss-German agreement "fundamentally changes the debate on the
taxation of savings in all of the European Union." Both Luxembourg
and Austria also impose anonymous withholding taxes rather than
sharing tax information with other EU member states.
Richard Hay of tax specialists Stikeman
Elliott agreed, noting that Switzerland is already negotiating a
similar deal with the UK. "Plans to snare holdouts [i.e. Austria
and Luxembourg] in the Savings Tax Directive must now be in doubt",
he said. "The agreement has key significance for the offshore
world."
The European Network on Debt & Development
(Eurodad) said the agreement "undermines the prospect of automatic
information exchange globally". Moreover, it noted that France and
Spain are also currently considering similar agreements with
Switzerland. If such agreements are concluded, the European Savings
Tax Directive, which imposes a higher withholding tax rate, could
effectively be killed off.
"It seems Switzerland has been pursuing the
withholding tax deals precisely because they undermine the EUSTD,
and damage the prospects of other international automatic
information exchange deals", said Eurodad.
Both countries' legislatures will have to
approve the deal before it becomes binding. Switzerland will
probably also hold a referendum, although the SBA urged parliament
to pass it as soon as possible in order to be ready for the 2013
deadline.
Sources
Swiss
Federal Department of Finance
Wall Street Journal Online
Swiss Bankers' Association
SBA (Q&A as PDF file, in English)
Reuters (via LSE)
Reuters (2)
Businessweek
AWP/Romandie News (in French)