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Greece 'Reactivates' Tax Deal With Switzerland

by Ulrika Lomas,, Brussels

02 August 2012

Determined to claw back billions of euros and to send out a crucial signal that efforts to consolidate the public finances are being made, the government in Athens has recently announced plans to negotiate a tax agreement with Switzerland.

The Greek finance ministry revealed that the Swiss government has been asked “to reactivate” the process to sign a bilateral accord aimed at taxing the accounts of Greek citizens alleged to have evaded taxes by using the Confederation’s banks.

Both countries initiated talks on a tax deal to resolve the issue back in 2011, although no concrete progress has been made up to now. Back in February 2012, the Greek finance ministry revealed that around EUR16bn (USD19.7bn) had been evaded in taxes, of which up to 10% allegedly related to Swiss deposits.

On the brink of bankruptcy and at great risk of exiting the eurozone, the Greek coalition government of Prime Minister Antonis Samaras is facing an increasing problem of capital flight abroad as the crisis exacerbates.

The finance ministry’s announcement will finally send out a strong signal to the Troika, the European Union (EU), the International Monetary Fund (IMF), and the European Central Bank (ECB), that the government is serious about tackling tax evasion and getting the public finances back on track.

Despite the presence of Troika representatives in Athens to assess the country’s progress as regards implementation of the austerity programme, agreed within the framework of its second international bailout deal, the coalition has so far failed to unite on a vital EUR11.5bn savings plan for 2013 and 2014.

Drawn up by the finance ministry, the two-year savings plan is said to include painful cuts to pensions, health care and welfare benefits. The plan has failed to get the backing of the conservative-led government’s coalition partners the Socialists and the Democratic Left.

The cornerstones of the controversial new savings package are said to include plans to progressively increase the pension age from 65 currently to 67 and to cap pensions at EUR2,200. Small farmers’ pensions would reportedly be reduced under the plans from EUR360 to EUR330 and other pensions in excess of EUR1,000 would be cut by between 5% and 15%.

Greece must achieve a consensus on the necessary additional savings cuts to ensure disbursement of further bailout funding.

Greece has repeatedly failed to respect its budgetary targets imposed under the terms of its rescue packages. The government has recently called once again for an extension to the latest fiscal adjustment programme, seeking a further two years to achieve its deficit targets.

While determined to show support for Greece, European Commission President Jose Manuel Barroso nevertheless warned Prime Minister Antonis Samaras that his government must honour its commitment to reform. Delays will not be tolerated, Barroso stressed.

Following months of gruelling negotiations, eurozone finance ministers finally gave back in March their seal of approval to a second EUR130bn bailout package for Greece.

The go-ahead followed completion of the exchange of privately held bonds, aimed at reducing the country’s debt by over EUR100bn.

In return for the aid package, Athens had agreed to a series of painful budgetary cuts, including plans to lower the minimum wage by 22%, to freeze civil servant pay and to cut pensions. The deep budgetary cut measures were in addition to debt restructuring.

Debt-ridden Greece had already adopted multiple waves of austerity measures over the course of the past few years, including income tax increases, and an extension of the new property tax, aimed at appeasing international creditors.

In its fifth consecutive year of recession, Greece must reduce its deficit from 9.3% of gross domestic product (GDP) last year to 3% of GDP by the end of 2014.

The Troika is expected to present its report on Greece’s progress in September.

TAGS: tax | investment | offshore confidentiality | law | banking | offshore | agreements | offshore banking | banking secrecy | withholding tax | Greece | Switzerland | European Union (EU) | Europe

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