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18 November 2011
On September 21 2011 Switzerland and Germany signed a cooperation agreement regarding the area of taxation and financial markets. The agreement aims to regularise untaxed assets while preserving Swiss banking secrecy, and to curb the extent to which information is exchanged in relation to tax matters. The agreement covers assets (eg, bank accounts and securities portfolios) held by the clients at banks, brokers, PostFinance and asset managers in Switzerland. However, the agreement will mainly concern banks and this update focuses on the impact of the agreement on Swiss banks.
The agreement applies to:
Once the agreement has entered into force (presumably on January 1 2013), all clients will have five months to choose one of the following options:
Where clients fail to indicate one of the three options to the bank, the one-off payment will be levied. Where clients opted for the one-off payment (or the one-off payment is levied by default) but insufficient funds have been made available, the Swiss bank will disclose the identity of the clients to the German tax authorities.
The Swiss banks will make an upfront payment of Sfr2 billion to the competent Swiss authority within 25 days of the date of the entry into force of the agreement. The Swiss authority will then transfer the amount to the German authorities within one month of the entry into force. This payment will then be offset against the tax payments made by clients.
The clients may also decide to withdraw their assets within five months of the entry into force of the agreement (presumably May 31 2013); however, Switzerland will report to the German authorities the 10 states or jurisdictions to which clients which closed their accounts or deposit have transferred the largest volume of relevant assets. The report will include the number of relevant persons concerned for each state or jurisdiction. This data will not be made public.
Within five months after the entry into force of the agreement, bank clients will have to choose one of the following options:
The German tax authorities are entitled to monitor the correct implementation of the German final withholding tax by Switzerland through random queries. The request must indicate the identity of the taxpayer concerned and be justified by plausible grounds. It must mention the private or professional character of the assets and the period for which the information is needed. The maximum number of requests is set by a joint commission and cannot exceed 999 for the first two years after the entry into force of the agreement. So-called 'fishing expeditions' are excluded. Should the German authorities wish to obtain further information regarding the reported bank accounts, they must submit a normal request for administrative assistance pursuant to Article 26 of the Organisation for Economic Cooperation and Development's Model Tax Convention on Income and Capital.
The question of the compliance of the agreement with EU law has already been raised by EU institutions. The European Commission is analysing the compliance of the agreement with the distribution of competences between the European Union and member states, with the provisions of the EU Savings Tax Directive (2003/48/EC) and with the Swiss-EU Agreement on the taxation of savings.
On October 25 2011 the European Commission answered a question from a member of the European Parliament on this matter and criticised the agreement. First, it stated that the scope of the agreement may cover areas of exclusive EU competence, which may lead to an infringement procedure against Germany to be initiated. Second, the level and nature of the withholding tax of the German-Swiss agreement differ clearly from the Swiss-EU agreement on the taxation of savings. The withholding tax rate of 26.375% contained in the German-Swiss agreement differs from the rate of 35% of withholding tax fixed in the Swiss-EU agreement. This result is achieved through a refund of withholding tax.
Although it is in the nature of an advance payment under the Swiss-EU agreement, the German-Swiss withholding tax appears to be final. It is likely to be less efficient in deterring tax evasion.
With the agreement on cooperation in the area of taxation and financial markets, Switzerland has established an ingenious but complicated way of preserving banking secrecy. It also hopes that this solution may act as an international benchmark for other countries with regard to tax cooperation. However, the Swiss Banking Association evaluates the cost of the agreement for the Swiss banks at several hundred million Swiss francs.
In return for Switzerland's concessions, the agreement will facilitate access to the German market for Swiss banks that wish to offer their financial services in Germany. The agreement provides for:
It remains to be seen whether the agreement will be adopted by the Swiss and German Parliaments. Furthermore, in Switzerland, a public vote may be held on the agreement.
The future of the agreement also depends on its compliance with EU law. This question is not only legal in nature, but also political. The commission hopes to establish the automatic exchange of information in tax matters and does not look upon this kind of agreement favourably. However, the introduction of the automatic exchange of information between Switzerland and the European Union would require an amendment of the Swiss-EU agreement on the taxation of savings. The commission has already asked for such a mandate from the council, but unanimity is required. Some EU member states (eg, Luxemburg) oppose the mandatory automatic exchange of information and have argued in favour of the possibility of exceptions. The agreement between Germany and Switzerland offers strong support to this position. It remains to be seen what Germany's position on this matter will be in light of the new agreement.
For further information on this topic please contact Christophe Rapin or Christophe Pétermann at Lachenal & Le Fort by telephone (+32 2 646 02 22), fax (+32 2 646 75 34) or email (firstname.lastname@example.org or email@example.com).
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