Switzerland And Germany Strike Tax Deal

by Ulrika Lomas, Tax-News.com, Brussels

29 October 2010

The Swiss and German finance ministers have agreed to start negotiations towards an agreement that will allow Germany to tax assets held by its residents in Swiss accounts, while Switzerland gets to retain some measure of banking secrecy.

The declaration initialled by Swiss Finance Minister Hans-Rudolf Merz and his German counterpart Wolfgang Schauble is similar to that agreed by Merz and British Chancellor George Osborne earlier this week. The declaration commits both sides to commence negotiations on the expansion of cross-border cooperation in tax matters and improved market access for banks. These negotiations are expected to begin early in 2011.

Both ministers also signed a revised double taxation avoidance agreement in accordance with the Organization for Economic Cooperation and Development standard during the meeting in Bern.

As with the Swiss-UK deal, the forthcoming agreement will mean that existing assets in Swiss accounts will be "regularized" and future investment income will be covered by a withholding tax, the rate of which will be determined during the negotiations. "In principle, after [the withholding tax] has been paid the tax obligation towards the country of domicile will have been fulfilled," a statement from the Swiss Federal Finance Department explained.

The agreement will also extend administrative assistance so that German authorities can submit requests for information about Swiss bank clients, but these requests will limited to a certain number and must be "well founded." The agreement will also prevent 'fishing expeditions.'

The lucrative flow of stolen bank data between former Swiss bank employees and the German tax authorities will also be dealt with in the negotiations, and Switzerland hopes that the package will resolve "the problem of possible criminal prosecution of bank employees."

In addition, Switzerland and Germany intend to address the issue of mutual market access for financial institutions, which could see Germany sweep away discriminatory measures which block cross-border business.

The Swiss Federal Council intends to approve the negotiating mandate after consulting the relevant parliamentary committees and other interested parties by the end of the year. The outcome of the negotiations will then be submitted to parliament.

Patrick Odier, Chairman of the Swiss Bankers Association said that the declaration was "an important milestone in the bilateral relationship between Germany and Switzerland."

"The principles agreed will enable Swiss banks to abide by their duty of fiduciary care for their longstanding clients. Clients are also assured that once an agreement is signed, they will be given sufficient time to choose the best course of action for them," the SBA stated.

"German clients of Swiss banks gain the opportunity to regularize their undeclared assets while maintaining their financial privacy," added SBA CEO Claude-Alain Margelisch.

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