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Last updated: August 11, 2011 8:57 am
Switzerland and Germany have reached a landmark tax agreement designed to clamp down on tax evasion by German residents with secret Swiss bank accounts.
The deal, which requires Swiss banks to make an advance payment of SFr2bn to the German tax authorities, will give Berlin income from hitherto undeclared accounts at Swiss banks, while allowing those customers to retain their anonymity.
The accord is intended to meet Germany’s desire to close a big tax loophole, while fulfilling Switzerland’s determination to preserve client confidentiality.
The deal is expected to be replicated shortly with the UK, and may serve as a template for similar agreements between Switzerland and other countries.
Germans with undeclared Swiss bank accounts will in future have income and capital gains taxed at 26.375 per cent flat rate – equivalent to what they would pay in Germany. Account holders will have the chance to legitimise their existing holdings by paying a penalty anonymously, ranging from 19-34 per cent of the total, with the precise amount depending on how long the account has been open. The assessment period begins in 2000.
To reassure Berlin no future accounts will go undeclared, Switzerland has accepted a simplified detection formula. To ensure the proceeds will meet Berlin’s expectations – and create an incentive for Swiss banks to comply – they will make an initial forward payment of SFr2bn, to be deducted from subsequent payments by clients once the scheme takes effect in January 2013.
Swiss banks will also gain the improved market access to Germany they have long sought, as well as possible freedom from prosecution for employees currently under investigation.
“The negotiators worked hard and achieved good results”, said Eveline Widmer-Schlumpf, Switzerland’s finance minister.
“We have ensured that no money will go untaxed in Switzerland in the future,” said Martin Kotthaus, German finance ministry spokesman.
German officials described the deal as “realistic” and “practicable”, designed to be strict enough to recoup significant tax revenues from secret accounts but not so penal that tax avoiders simply move them to more distant offshore locations, such as Singapore or Panama.
It marks the end of a long-running dispute between the two governments, brought to a head last year when the German tax authorities said they had obtained CDs from whistleblowers containing details of secret bank accounts in Switzerland.
The upfront payment of SFr2bn is less than the SFr10bn the German finance ministry was hoping for, but will give Wolfgang Schäuble, finance minister, a headline figure to demonstrate that the deal will produce real money for the German exchequer.
On the assumption that significant numbers of German tax evaders take advantage of the scheme to avoid the simplified detection rules, the Swiss banks will be able to recoup their up-front payment on a “step-by-step” basis.
German officials decline to estimate the total amount of German assets held in Swiss accounts, nor how much revenue they hoped to recoup.
Equity analysts have put the total at between €130-180bn, but even then it is unknown how many account holders will come clean and pay back tax, rather than try to shift funds elsewhere.
Swiss bankers are putting a brave face on the deal. “It is an important milestone for the Swiss financial centre”, said Patrick Odier, chairman of the Swiss Bankers Association. Many analysts, however, regard it as a gamble because it will make Switzerland much less attractive for tax avoiders, resulting in a sharp decline in the country’s offshore banking industry.
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