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Germany 'Modifies' EU-Contested Swiss Tax Deal

by Ulrika Lomas,, Brussels

09 March 2012

Germany and the European Commission have reportedly resolved their differences over the bilateral German-Swiss withholding tax deal aimed at preventing tax evasion.

Both sides are said to be united in their commitment that, in the case of conflict, provisions contained in existing European Union (EU) tax agreements will have priority over the regulations provided for in the treaty between Germany and its neighbouring country.

In concrete terms this will apply to the treatment of interest income earned by German nationals with accounts held in Switzerland. Such income is currently subject under the terms of the EU savings tax directive to a 35% rate of tax.

A spokesman for EU Tax Commissioner Algirdas Semeta recently indicated that such a settlement has also been reached with the UK, emphasizing that following “constructive talks” with Germany and the UK, both countries agreed to modify their bilateral agreements with Switzerland.

The German finance ministry confirmed the reports, stating that a consensus was reached with the Commission as regards the treatment of private interest income, subject to provisions contained in the EU agreement with Switzerland. These provisions will be removed from the scope of the German-Swiss treaty, the ministry added.

EU Tax Commissioner Semeta had previously underscored his grave reservations regarding the conclusion by individual EU member states of bilateral tax agreements with the Confederation. In a recent letter addressed to the Danish Presidency he called for EU member states to refrain from negotiating, initialling, or ratifying such accords if any of the provisions encroach on EU legislation. Semeta is seeking a withholding tax solution at Community level.

Commenting on Semeta’s warning shot, Swiss Finance Minister Eveline Widmer-Schlumpf insisted that the remarks would not result in major changes to the recently negotiated bilateral withholding tax treaties, arguing that the proposed tax provisions were completely EU-compatible and able to be implemented.

Germany and Switzerland negotiated back in August a deal aimed at resolving the longstanding tax dispute between the two countries, regarding undeclared assets held by German residents in Swiss bank accounts.

The area of application of the agreement encompasses capital income, including income from interest, dividends, capital gains and other related income. Under the terms of the agreement, such income is to be taxed in future at a rate of 26%.

However, the German coalition government has yet to reach a compromise with the main opposition party the Social Democrats (SPD), who have pledged to veto the treaty in the Bundesrat.

A similar bilateral withholding tax deal, or so-called “Rubik” agreement, with the UK to regularize non-declared accounts was agreed in October.

TAGS: tax | European Commission | interest | agreements | legislation | tax rates | withholding tax | Germany | Switzerland | dividends | regulation | European Union (EU) | Europe

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