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Schauble Defends Switzerland's Fair Tax Deal

by Ulrika Lomas, Tax-News.com, Brussels

30 August 2012


German Finance Minister Wolfgang Schäuble has recently denounced Social Democrat (SPD) plans to veto the bilateral tax deal with Switzerland in the German Bundesrat, insisting that to do so would be “irresponsible” and would lead to further annual losses for the state of hundreds of millions of euros.

Schäuble underscored that there is no “serious” argument to challenge the agreement, explaining that following entry into force of the treaty future German capital deposits placed in Swiss banks will be subject to the same rate of taxation as in Germany.

In Germany, a capital gains tax of 25% plus solidarity tax is transferred from the banks directly to the country’s tax authorities, the minister continued, stating that Swiss banks will do the same in future and that the federal states will receive a considerable share of the revenue generated. As regards the past, Switzerland and Germany have united on a lump sum solution that will serve to yield an estimated EUR10bn (USD12.56bn) for the state, of which Germany’s federal states will receive up to 70%, the minister added.

Banking secrecy is “a long tradition” in Switzerland, Schäuble said, noting that a common solution has finally been found to restore and relax increasingly tense relations between the two countries.

Rejecting claims that German residents with old money held in Swiss bank accounts will be treated more favourably than taxpayers in Germany, Finance Minister Schäuble stressed that such an assumption is ridiculous, reiterating that the accord provides for the equal tax treatment of future capital gains and for the taxation of the past. In addition, inheritance tax will in future be levied at a rate of 50% unless individuals elect to declare their inheritance to the German tax authorities instead.

The minister pointed out that following its revision on April 5 the agreement provides that Swiss banks may offer their German clients two choices following entry into force of the treaty on January 1, 2013: either clients report directly to the German tax authorities and pay the necessary tax due in Germany, or they are subject to a flat rate of taxation in Switzerland, the sum of which is then subsequently transferred to Germany.

Dismissing SPD claims that the flat rate of tax for the past merely equates to a tax amnesty, Schäuble explained that the rate of taxation for the past depends entirely on the length of time that the money has been in the Swiss bank, with rates varying between 21% and 41%, levied on the actual capital not just on interest income. This is not preferential tax treatment, the minister emphasized, pointing out that in Germany tax breaks would apply in most cases, thereby lowering tax bills. Most tax experts would recommend that individuals fulfil their tax obligations in Germany rather than paying a lump sum tax on capital in the Confederation, the minister continued, maintaining that is very good news for the accord.

Concluding his remarks on the bilateral tax deal, Schäuble made clear that there is absolutely no scope for re-negotiations. This has been ruled out, he said, noting that Switzerland has already concluded its legislative process and ratified the deal. There is no possibility of once again amending the text, the minister warned.

Alluding to the mounting crisis in Greece and to whether or not to ease conditions for Athens, Finance Minister Schäuble underlined that granting more time would generally mean more money. This then quickly becomes a new adjustment programme, he said. At the end of 2011, following difficult negotiations, a second three-year bailout deal was agreed, the minister continued, noting that if after six months this accord is no longer sufficient, then it has failed to achieve the objective of restoring confidence.

Highlighting the fact that fundamental doubts surrounding Europe are due to the disparity between fiscal policy and monetary policy, with monetary policy being decided at European level and fiscal policy at national level, Schäuble stressed the need to resolve the discrepancy to restore confidence in the eurozone. Until then, it is imperative to display solidarity, to limit the risk of contagion and to facilitate reforms, Schäuble ended, stressing that the fiscal pact is an important step in the right direction.

The German finance minister has recently confirmed plans to work closer together with French Finance Minister Moscovici to tackle the eurozone debt crisis, revealing his intention to set up in the coming days and weeks ahead an inter-ministerial department to prepare joint proposals to push forward plans for a fiscal and banking union and to promote growth.

TAGS: individuals | inheritance tax | Finance | tax | investment | interest | fiscal policy | banking | agreements | tax rates | Germany | Greece | Switzerland | tax breaks

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