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Bundesrat Blocks Swiss-German Tax Deal

by Ulrika Lomas, Tax-News.com, Brussels

27 November 2012


As predicted, the German Bundesrat, or upper house of parliament, has rejected during a recent plenary sitting the landmark tax deal concluded between Germany and Switzerland, providing for cooperation in the area of taxation.

The Bundestag (lower house) and federal government now have recourse to an arbitration committee. However, substantive improvements to the treaty itself are not possible within the framework of the arbitration process as the committee is not able to propose changes to the actual text.

Negotiated by German Finance Minister Wolfgang Schäuble, the bilateral tax treaty provides for a 25% withholding tax (plus solidarity surcharge) to be imposed from 2013 on capital gains received by German taxpayers with accounts held in Switzerland, ensuring that capital gains realized in Switzerland are in future treated in the same way as in Germany.

The accord also provides for a 50% tax to be imposed on inheritances in Switzerland, unless German residents opt to declare their inheritance to the German tax authorities.

To resolve the past, the tax deal provides for the taxation of hitherto undeclared and untaxed assets held by German taxpayers in the Confederation’s banks, at withholding tax rates varying from 21% to 41%.

Predictably, the text was blocked in the Bundesrat by senators from states led by the Social Democrat (SPD) and Green Parties. Opposed to the legislation from the outset, the opposition parties insist that the agreement is too lenient on tax evaders in its current form and contains too many loopholes.

Denouncing the accord, North Rhine-Westphalia’s Finance Minister Norbert Walter-Borjans (SPD) emphasized that the provisions “spare” tax evaders, and underlined the need for an agreement that instead closes loopholes. The SPD minister argued that the accord simply serves to undermine tax morality and contradicts the very idea of tax justice. The failure of the agreement is therefore “a good result for the German taxpayer”, Walter-Borjans added.

Echoing these views, Chairman of the German tax union DSTG Thomas Eigenthaler welcomed the outcome of the Bundesrat vote, stating that he now expects a wave of voluntary tax declarations to be submitted from tax evaders. Better no agreement than this one, Eigenthaler stated, maintaining that Germany will be financially better off from the continued purchase and evaluation of Swiss tax data discs, containing the names of German residents alleged to have undeclared accounts held in Switzerland.

Defending the agreement, and clearly determined to continue to fight for the adoption of the treaty, German Finance Minister Wolfgang Schäuble reiterated that it is a balanced and fair deal, stressing that Germany could neither want, demand nor expect any more.

Swiss Finance Minister Eveline Widmer-Schlumpf expressed her support, explaining that Switzerland would endeavor to see the agreement with Germany through to a successful conclusion.

Lamenting the outcome of the vote, the Swiss Bankers Association pointed out that the deal represents “for all sides a fair, optimal and sustainable solution”. Swiss business federation Economiesuisse stressed that the treaty is beneficial for all sides and serves to end the long-standing conflict between the two countries.

As matters stand currently, the accord will not now enter into force as planned on January 1, 2013. Given that the treaty has already been adopted by the Swiss parliament, it remains to be seen as to how the German coalition might salvage the deal.

TAGS: compliance | Finance | tax | investment | tax compliance | tax avoidance | banking | offshore | agreements | legislation | offshore banking | banking secrecy | withholding tax | Germany | Switzerland

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