Swiss-German Tax Deal Under Threat

by Ulrika Lomas, Tax-News.com, Brussels

08 February 2012

Social Democrat (SPD) controlled states throughout Germany reportedly plan to block the bilateral tax agreement between Switzerland and Germany in the German Bundesrat, or upper house of parliament, during a crucial vote on February 10.
According to Baden-Württemberg’s Finance Minister Nils Schmid (SPD), German Finance Minister Wolfgang Schäuble will no longer be able to prevent a defeat in the upper house. Schmid warned that it is “highly unlikely” that the agreement will receive the country’s support, arguing that the proposed level of taxation of undeclared German assets held in the Confederation is “simply too small”.
Schmid called for the Swiss government to demonstrate a greater willingness to compromise, otherwise the only alternative would be to continue to purchase tax data discs.
Signed on September 21, the landmark Swiss German bilateral tax deal, aimed at resolving the longstanding tax dispute between the two countries, provides for the future taxation of income earned by German taxpayers through accounts held in Switzerland from January 1, 2013 by means of a 26% rate of withholding tax, with the proceeds derived from the levy subsequently being transferred to the German authorities.
The agreement also provides for the lump sum taxation of 'old money' held by German residents in undeclared Swiss accounts, imposed at a rate of between 19% and 34%.
The treaty maintains traditional Swiss banking secrecy, by regularizing accounts without, however, disclosing individual identities.
Determined to gain support for the treaty from the SPD-led states in the Bundesrat, where the coalition Christian Democratic Union and Free Democratic Party no longer have a majority, German Finance Minister Schäuble had reportedly intended to amend the provisions, to allow more instances of mutual assistance. The current text limits the number of requests for information to 999 over a period of two years.
Prior to the agreement, the purchase of the tax data discs by the country’s authorities proved highly lucrative for the state, leading to a wave of voluntary disclosures throughout Germany from individuals fearing prosecution. Although it was initially unclear as to whether or not the purchase was legal, Germany’s Federal Constitutional Court finally permitted the use of the tax information contained on data discs for criminal prosecutions in December 2010.
The court ruled that information regarding alleged tax evaders, contained on discs provided by informants, may indeed be used during criminal investigations, irrespective of whether or not the original means by which the data was obtained was deemed to be lawful.
A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report2.asp