EU set to accept Swiss compromise on taxation

The EU has softened its opposition to banking secrecy

Switzerland appears to have fought off a European Union assault on banking secrecy, after months of acrimonious negotiations over the taxation of EU residents' savings.

This content was published on November 27, 2002 - 12:34

Brussels is expected to recommend that EU finance ministers drop their demands for Bern to waiver banking secrecy, and accept an alternative Swiss proposal.

The move would be a major climb down by Brussels, which has been demanding that Switzerland exchange information about EU residents' savings in Swiss banks.

The EU has been applying heavy pressure on the Swiss for months, most recently by threatening sanctions if Bern refused to comply.

According to the Financial Times, Brussels now appears ready to compromise by accepting a Swiss proposal in which Bern would levy a 35 per cent withholding tax on EU citizens' savings.

Most of the tax take would be sent to the EU residents' home country, but information about the residents' assets in Switzerland would not be exchanged.

The FT's Brussels correspondent, Francesco Guerrera, who has seen the text of the proposed compromise, told swissinfo that the Commission had accepted most of the Swiss proposal.

"One stumbling block remains: the Swiss say they will only exchange information in criminal cases including tax fraud," said Guerrera. "The EU wants this extended to cases of suspected tax evasion."

The Swiss have so far refused because tax evasion is not a crime in Switzerland - only a cross-border offence.


The Swiss say the deal is conditional on three EU countries - Austria, Belgium and Luxembourg - also levying a tax at the same rate.

The three also have forms of banking secrecy, and have refused to comply with the EU's savings tax directive until Switzerland does the same.

Correspondents say the Swiss position has been helped by the EU's self-imposed deadline of the end of year to agree the terms of the savings directive, which seeks to impose a uniform tax collection regime across the Union.

Switzerland's refusal to give way on banking secrecy, they say, left the EU with little option but to compromise.


Splits within the EU over the issue have also made life difficult for Brussels. Luxembourg has made it clear it would not support heavy-handed action against Switzerland. And even the EU commissioner for taxation, Frits Bolkestein, has said that asking for an exchange of information was unrealistic.

Bolkestein recently accused some countries of wanting to scupper the savings directive. He was widely assumed to be referring to Britain, which has insisted the Swiss should be forced to exchange information - in contravention of banking secrecy.

The Commission's compromise proposal is due to be discussed by EU finance ministers next week.


Stiff opposition is expected by Britain's finance minister, Gordon Brown, who has staked his reputation on fending off any withholding tax on the City of London.

The FT's Francesco Guerrera told swissinfo that London could scupper the entire savings tax directive since any deal has to be unanimously approved by all 15 EU member countries.

"The UK government has always sought a full exchange of information. If the UK sticks to this line, the compromise will not go through," he said.

"If it is not approved, the EU will have egg on their face because they tried for a year to get approval on rules they regard very important, and failed."


Banking secrecy brief

Brussels' acceptance of a Swiss withholding tax instead of an exchange of information would be seen as a victory for Switzerland.

The EU has been applying heavy pressure on the Swiss for months, most recently by threatening sanctions if Bern refused to comply.

Under the Swiss proposal, most of the tax levied on EU residents' Swiss accounts would be sent to the residents' home countries, but no information would be exchanged.

The Commission's compromise proposal is due to be discussed by EU finance ministers next week.

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