Switzerland and Britain have finalised their withholding tax agreement, expected to enter into force next year.

In Brussels on Tuesday, the two countries signed a protocol of amendment supplementing the accord reached last October.

While the deal is essentially unchanged, interest payments, which are covered by a 2004 accord on the taxation of savings between Switzerland and the European Union, will now be excluded from its scope.

Specifically, interest income will now be subject to 35 per cent tax under the EU-Swiss agreement, plus an additional 13 per cent to ensure tax compliance, which adds up to an unchanged rate of 48 per cent.

Effectively, nothing will change for bank clients; their tax obligations will be fulfilled. Only the legal structure will change. Inheritance is now also covered by the agreement in order to close a loophole. In the case of inheritance, the heirs must consent to either collection of a tax or disclosure.

Tuesday’s changes should serve to eliminate EU Commission concerns regarding compatibility with EU law.

The agreement not only respects the protection of bank clients' privacy applicable in Switzerland but also ensures the implementation of the British authorities' legitimate tax claims. In addition, mutual market access for financial services will be improved.

The agreement requires the approval of parliament in both countries, and should enter into force at the start of 2013.

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