German-Swiss Tax Dispute Nears Conclusion

by Ulrika Lomas, Tax-News.com, Brussels

21 October 2010

Germany and Switzerland are reportedly nearing a resolution on their long standing tax dispute regarding the taxation of undeclared German assets held in Swiss bank accounts, and aim to have an agreement on double taxation in place before the end of October.

According to a spokesman from the German Finance Ministry, the German and Swiss governments aim to sign a revisions protocol to the existing bilateral double taxation agreement before the end of the month. Negotiations on the protocol, which have been ongoing since March, are intended to provide a lasting solution to the problem of undeclared and untaxed capital deposits in Switzerland, the spokesman emphasized.

Over the course of the past few months, the row between Germany and Switzerland regarding tax evaders has escalated, fuelled by the regular emergence of stolen tax data discs, containing the names of alleged German tax evaders suspected of holding accounts illegally in Switzerland, and offered to the German tax authorities for considerable sums of money. Consequently, a bilateral agreement, providing for both transparency and for an effective exchange of information, would hopefully serve to put an end to both the highly divisive dispute and the lucrative trade in stolen data.

During an economics conference held in Basel at the beginning of September, Germany’s Finance Minister Wolfgang Schäuble explained that the agreement would include a combination of a withholding tax and an administrative assistance procedure, and inferred then that the bilateral tax agreement would be completed by the end of October.

Currently under discussion as part of the proposed agreement is the introduction of a 35% withholding tax levied on new accounts, the proceeds of which would flow directly back to the German authorities. Full anonymity of the account holder would, however, be maintained. As regards old accounts, capital appreciation for the previous ten years would be calculated, a 35% tax would be levied and the product of the tax would once again be returned to Berlin. Although this solution would undoubtedly prove costly for the alleged tax evader, such a process would serve to legalize the account, while the account holder avoids prosecution in Germany.

The basis for the agreement is Article 26 of the Organization for Economic Cooperation and Development's (OECD) model convention for double taxation, providing for information in tax matters upon request.

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