Chris Patten Annoys The Swiss By Linking Information-Sharing To Bilateral Agreements

Ulrika Lomas, Tax-News.com, Brussels

26 February 2001

With just a week to go before the Swiss vote in a referendum on whether to joint the European Union, the EU Commission in Brussels joined the French Parliament in its efforts to annoy the Swiss into voting No!

Swiss anger at the French Parliament's accusations over money-laundering had hardly died down before Chris Patten, European Commissioner for External Affairs, wrote a strongly-worded letter urging the Swiss Government not to delay negotiations on customs fraud and the savings tax.

"Any subsequent delay would risk having serious negative effects on the prospects for the development of our relations on this question and in other areas," the letter said, perhaps referring to the package of seven bilateral agreements reached 18 months ago between Switzerland and the EU (and approved in a referendum) and which is close to ratification.

Moritz Leuenberger, Switzerland's president, deplored Patten's letter and warned against attempts to link the bilateral agreements to negotiations on customs fraud or withholding tax: "We are ready to negotiate tax fraud but to make a connection with bilateral agreements is inappropriate, especially when Switzerland wants to join the EU. It gives the wrong message to the Swiss people that this is the way Brussels works and that is not good."

Switzerland has been vigorously defending its principle of banking secrecy against the EU's efforts to get it to agree to exchange of information on non-resident savings income so it can be taxed in the person's country of origin. The compromise reached at Feira after the EU's Portuguese presidency last December to switch to an information-sharing scheme by 2009 is dependent on getting other countries, including Switzerland, the US and some of the more important offshore jurisdictions such as Jersey and the Isle of Man to agree to join in - and these agreements have to be in place by the end of 2002 if the compromise is not to collapse.

Switzerland levies a 35% withholding tax on interest payments to non-residents from securities, and says this is the best way of dealing with tax evasion. But there are structures and types of security which allow this tax to be minimised - zero-coupon bonds, for instance. Also, Switzerland gets to keep the tax withheld in many circumstances, although the country is now beginning to offer to share it with the country of origin of the deposit on a no-name basis, which would be similar to the 'pooling' of types of payment under the US Treasury's new 'Qualified Intermediary' rules. Where there is a double tax treaty the non-resident is able to claim a refund of part or all of the 35% - but of course only at the cost of submitting to his home-country tax system. So one can imagine that the double tax treaties don't get used all that often by individuals.

It certainly seems strange timing that the EU should upset the Swiss twice so pointedly just before a referendum; but the two events are not connected. The French parliamentarians concerned are well known loose cannons, and Fat Pang's letter was probably put in front of him to sign by bureaucrats working along according to some inscrutable internal timetable regardless of the real world outside.

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