BERN, SWITZERLAND – A Swiss-German tax deal has been reached, and the details, which have provoked much speculation in recent weeks, were made public Wednesday morning by the two governments. The much-touted likely “fine” of CHF2 billion that Swiss banks would need to pay Germany turns out to be a refundable guarantee:
“In order to ensure a minimum income from the retrospective taxation of existing banking relationships as well as to state their resolve to implement the agreement, the Swiss banks have undertaken to pay a guarantee in the amount of CHF 2 billion. The funds advanced by the banks will then be offset by the incoming tax payments and refunded to the banks.”
Bern and Bonn initialed the agreement on “outstanding tax issues” Wednesday 10 August. Key features of the agreement include:
- Persons resident in Germany can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts
- Future investment income and capital gains of German bank clients in Switzerland will be subject to a final withholding tax
- Proceeds of the withholding tax will be transferred to the German authorities by Switzerland
- A safety mechanism is being set up to allow Germany to request some information in order to avoid new, undeclared accounts from being opened
- A solution to the problem of the possible prosecution of bank employees is included.
Specifically, on the withholding tax, Bern says in its statement, “Final withholding tax for the future: future investment income and capital gains should be directly covered by a final withholding tax. The single tax rate has been set at 26.375%. This is in line with the current flat-rate withholding tax in Germany. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.”
German authorities will be able to submit requests for information in order to prevent new, undeclared funds from being deposited in Switzerland “in the context of a safety mechanism that must state the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and there must be plausible grounds. The number will be within the range of 750 to 999 requests for a two-year period; an adjustment will then be made based on the results. So-called fishing expeditions are not permissible.”
Germans can pay lump sum back taxes anonymously or own up to accounts
The agreement notes that “To retrospectively tax existing banking relationships in Switzerland, persons resident in Germany should be given one chance to make an anonymous lump-sum tax payment. The size of this tax burden will vary from between 19% to 34% of the assets in question, and will be determined based on the duration of the client relationship as well as the initial and final amount of the capital.” Alternatively, “those affected should also have the possibility of disclosing their banking relationship in Switzerland to the German authorities.”
Germany to streamline Swiss banks’ access to German market
Switzerland has been keen to gain better access to German financial services markets and the agreement notes that “mutual market access for financial services will be improved.” In particular, “the exemption procedure for Swiss banks in Germany will be simplified, and the obligation to initiate client relationships via a local institution will be eliminated. Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved.
Bern says it expect the agreement to be signed by both governments in coming weeks and notes that it “could enter into force at the start of 2013″.
Michael Ambühl, State Secretary, Swiss Federal Department of Finance, and Hans Bernhard Beus, State Secretary, German Federal Ministry of Finance, were the lead negotiators, who initialled today’s agreement.