Swiss deals complicate EU tax negotiations

EU Taxation Commissioner Algirdas Semeta has not yet taken a position Reuters

The bilateral tax agreements concluded by Switzerland in August with Germany and Britain have become a bone of contention in the European Union.

This content was published on September 14, 2011 - 13:23
Tanguy Verhoosel in Brussels,

From Luxembourg’s perspective, they have an impact on the renegotiation of the directive on taxation of savings income.

The so-called Rubik agreements were initialled in August and are set to be signed in autumn, after which their ratification procedure begins. They are due to enter into force at the beginning of 2013.

The agreements aim to reconcile Bern’s desire to preserve as far as practicable the “private sphere” of the clients of Swiss institutions (and therefore banking secrecy) with the desire in Berlin and London to recoup billions effortlessly.

The Rubik system is based on two pillars: the anonymous regularisation of untaxed assets which British and German residents have in the past lodged in Swiss banks, and the effective taxation of all income on wealth and capital gains taxable in their countries in the future.

Withholding taxation at source will be deducted in Switzerland, for the past as for the future.

The effective rate of imposition will be set at 20-25 per cent within the framework of regularisation. As for future income earned by British and German savers, the rate will vary according to legislation in force in their countries, between 26.375 per cent and 48 per cent. In return, Switzerland obtained some concessions.


Are these agreements compatible with the European directive on the taxation of savings, now being renegotiated, and the accord Switzerland concluded with the EU covering this area in 2004?

EU Taxation Commissioner Algirdas Semeta, speaking to journalists on September 8, had not yet decided.

“The texts are not yet available. I hope Britain and Germany will present them on September 22 at a meeting of the working group on taxation of the 27 [EU countries]. In the meantime it is hard to take a position,” he said.

“We have had numerous contacts with Germany and Britain which have assured us that their bilateral agreements do not violate the European directive or the agreement in this area between the EU and Switzerland.

"We will verify all that. It’s clear that according to international law the directive and the EU Swiss agreement take precedence over the agreements reached in August.”

Some in Brussels are quite optimistic. They say the conclusion of these agreements could facilitate the coming renegotiation of the taxation on savings income agreement between Switzerland and the EU.

Their scope is in effect much broader than that of current European regulation, which could help Brussels convince Switzerland to extend its agreement with the union to new products and to find a better combination between the principle of withholding tax and that of exchange of information on demand between tax administrations.

Luxembourg spanner

Luxembourg, however, is threatening to throw a spanner in the works of the Commission.

In a statement, its finance minister claimed “that the withholding tax model – a model which Luxembourg has always defended – is a key element of the agreements” which should in any case have an impact on the negotiations now under way concerning the directive on the taxation of savings.

In other words, if Germany and Britain accept the preservation of Swiss banking secrecy, there’s no reason for them to continue to put pressure on Luxembourg and Austria, inside the European Union, to replace the system of withholding tax with the automatic exchange of information between tax administrations.

Semeta obviously does not see things that way.

“The automatic exchange of information is the rule in the EU. The application of the withholding tax system by Austria and Luxembourg was only authorised for a transitional period,” he said.

“For other countries it’s different: the Union demands they apply measures similar to its own, but not identical. What counts is that they respect the standards of the OECD (Organisation for Economic Co-operation and Development) on the exchange of information on request.”

German opposition

The German Social Democrats have hardened their opposition to the August tax agreement with Switzerland.

Norbert Walter-Borjans, finance minister for the regional state of Nordrhein-Westfalen, told the German news magazine Der Spiegel that he intended to block ratification of the agreement in the Bundesrat, the representative body of the regional states.

The agreement must be accepted by both the Bundestag (parliament), where the ruling centre-right coalition has a majority and the Bundesrat, where it does not.

Walter-Borjans said the negotiations had produced a “scandalous result” which allowed very wealthy tax offenders off the hook much too lightly.

He said he planned to go ahead and use the stolen bank data already purchased by Nordrhein-Westfalen.

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Give and take

Switzerland has had to demonstrate its good faith to Berlin and London. The agreement with Germany includes an up-front payment to Germany of SFr2 billion ($2.27 billion) by Swiss banks in 2013, while the British will get €415 million.

A loyalty clause will prohibit the banks from helping their clients move their assets to Singapore or other tax havens. They will also have to provide statistics on capital flight.

Switzerland will also be charged with deducting inheritance tax due to Germany and Britain. The two countries will have the possibility of submitting 500 requests annually for verification of the proper implementation of the agreements under fairly flexible conditions.

In return, Swiss banks will be able to more easily access the British and German financial markets. Employees and clients of Swiss banks will also benefit from prosecution immunity.

London and Berlin have undertaken not to make use of stolen bank data in future.

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