Swiss Must Kill Bank Secrecy, Revise Deals, EU Tax Chief Says

By Giles Broom

Feb. 6 (Bloomberg) -- Switzerland must eliminate banking secrecy and renegotiate tax accords with the U.K. and Germany that clash with regional initiatives, according to European Union Tax Commissioner Algirdas Semeta.

While Switzerland agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development, bilateral agreements signed in September with Germany and the U.K. allow client identities to remain secret.

“Banking secrecy that allows companies or individuals to hide taxes has no future,” Semeta said in an interview in Brussels, adding that he wants to crack down on EU citizens using Swiss bank accounts to hide money. “If we knew the exact amount of tax evaded, we would present a bill to Switzerland.”

While the U.S. last week broadened a crackdown on offshore tax evasion by bringing criminal charges against Wegelin & Co., the U.K. and Germany have adopted withholding tax accords proposed by Swiss bankers. Those deals “entrench Swiss banking secrecy,” the London-based Tax Justice said in an October study, which put the Alpine country at the top of a financial secrecy index.

Semeta, a former Lithuanian finance minister, has helped stall the bilateral tax agreements struck by the U.K. and Germany by ordering the two countries to redraft segments that clash with existing EU rules.

Rubik Dead

Going forward, Swiss banks plan to levy a 26.375 percent withholding tax on interest, dividends and capital gains earned by Germans with offshore accounts. Revenue generated will go to the German treasury.

That agreement, based on the so-called Rubik model, is threatened by resistance from the German Social Democratic opposition, according to the Tax Justice Network.

“Increasingly there are signs that the Rubik deals are dead,” said Markus Meinzer, a Frankfurt-based member of the network who helped gather over 84,000 signatures for a petition to Germany’s upper house protesting against a “free ticket for tax cheats.”

Under a similar U.K.-Swiss accord, Swiss banks will levy a withholding tax of 48 percent on interest income and 27 percent on capital gains earned by Britons with offshore accounts.

A series of loopholes in the agreement means the British government will only recoup 10 percent of the 4 billion pounds ($6.3 billion) to 7 billion pounds of revenue envisaged by the bilateral treaty, the Tax Justice Network said in October.

‘Still Optimistic’

“We are continuing to explore the issues raised by the Commission,” said Patrick O’Brien, a spokesman for the U.K.’s tax authority known as HMRC, who declined to answer further questions on the matter.

Swiss bankers said the withholding tax agreements may still be ratified and replicated by other EU states.

“I’m personally still optimistic,” said Alfredo Gysi, head of the Association of Foreign Banks in Switzerland. “It’s still in the highest interests of all parties involved to find a solution”

Semeta, 49, is “optimistic” he will get a mandate from EU finance ministers this month to negotiate with the Swiss in a bid to close loopholes in an earlier withholding tax agreement. Switzerland is under pressure to expand the definition of interest income covered by the accord and provide greater transparency on those benefiting from money deposited in the world’s biggest center for offshore wealth, he said.

“Any agreements that violate EU law cannot see daylight,” said Semeta, adding that the EU’s 27 member states lose about 250 billion euros ($328 billion) a year from tax leakage worldwide.

The existing withholding tax deal on savings interest between the EU and Switzerland generated revenue of 330 million euros in 2010.

Semeta said the “best approach” is an automatic exchange of information, where tax data of a resident of another state is routinely sent to that country’s authorities.

--Editors: Dylan Griffiths, Stephen Taylor.
To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net
To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net