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EU Challenges Switzerland's Landmark Tax Deals

by Ulrika Lomas, Tax-News.com, Brussels

29 November 2011


The European Commission plans to challenge landmark bilateral tax deals concluded between Switzerland and the UK and Switzerland and Germany pertaining to the taxation of savings held by British and German investors in Swiss bank accounts.

Undermining Switzerland’s hopes of negotiating further bilateral tax agreements with individual European Union member states, as a means to resolve the ongoing, longstanding dispute regarding undeclared assets held in Switzerland by EU nationals, the Commission recently asserted that the treaties are not compatible in their current form with European law.

The Commission argues that the tax deals undermine the objective of the Savings Tax Directive, a mechanism which allows member states to tax certain investments held by residents in other member states and certain third countries, including Switzerland. Opposed to the anonymity provision, the Commission is continuing to strive for an automatic exchange of tax information.

A spokesman for EU Tax Commissioner Algirdas Semeta, who is said to be considering whether or not to take legal action, recently stated according to Reuters that: “The Commission has been very clear that areas covered by EU legislation must not be included in bilateral agreements between member states and third countries”.

Due to enter into force in 2013, the Swiss-UK bilateral tax agreement provides for a tax to be imposed on future income and for a one-off charge to be imposed on undeclared assets.

Signed on September 21, the landmark Swiss German bilateral tax deal provides for the future taxation of income earned by German taxpayers through accounts held in Switzerland from January 1, 2013 by means of a withholding tax, with the proceeds derived from the levy subsequently being transferred to the German authorities.

The agreement also provides for the lump sum taxation of 'old money' held by German residents in undeclared Swiss accounts.

Both bilateral treaties maintain traditional Swiss banking secrecy, by regularizing accounts without, however, disclosing individual identities.

German Finance Minister Wolfgang Schäuble is reportedly already endeavouring to renegotiate the text of the tax agreement, to gain support for the deal from the Social Democrat-led states (SPD) in the German Bundesrat or upper house of parliament. Echoing the Commission’s stance, and insisting that the current accord is too lenient, the SPD-led states have threatened to veto the agreement in the Bundesrat.

Schäuble reportedly now aims to amend the provisions, to allow more instances of mutual assistance. The current text limits the number of requests for information to 999 over a period of two years.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report2.asp
TAGS: tax | offshore confidentiality | European Commission | law | banking | United Kingdom | offshore | agreements | legislation | offshore banking | banking secrecy | withholding tax | Germany | Switzerland | regulation | European Union (EU) | Europe

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