Strict secrecy has helped Switzerland build up a $2 trillion offshore financial sector, but the country has faced an international campaign in recent years against tax evasion as cash-strapped governments seek to boost revenues.
Citizens of neighboring Germany — keen to claw back funds as the worsening euro zone debt crisis expands its role as the region’s main paymaster — have an estimated 150 billion Swiss francs ($203 billion) hidden in secret accounts.
In a deal that could set a model for agreements between Switzerland and other countries, existing funds will be taxed at a rate between 19 and 34 percent, based on how long the money has been stashed away and the rate of capital gains.
Future investment income and capital gains will be taxed at a rate of 26.375 percent, in line with the current flat-rate withholding tax in Germany, the Swiss government said in a statement.
Banks UBS and Credit Suisse both welcomed the deal, but the German tax trade union said it was skeptical.
“The retroactive tax actually presents a discount ..and is a slap in the face of tax payers who were honest and always paid the full rate, and it will also be a big disappointment for those who actually denounced themselves as evaders and had to pay a higher rate,” Thomas Eigenthaler, head of the German tax trade union, said.
By introducing a withholding tax, the deal allows Switzerland to avoid the automatic exchange of information, for which Germany had been pushing.
Switzerland will now cooperate more readily with Germany’s attempts to catch tax cheats in exchange for Germany’s agreement not to buy any more stolen tax data. Germany’s decision to pay for stolen data soured between the two countries.
German fiscal authorities will be allowed to put in between 750-999 requests with their Swiss counterparts in a two-year period, if they have good grounds to suspect cases of tax dodging. Germany will not be able to pursue any large-scale “fishing expeditions.”
The agreement should take effect at the start of 2013, and the two countries agreed to improve market access for their financial institutions. In Germany, it must be approved by both houses of parliament.
The deal comes two years after a diplomatic spat that strained relations between the two countries when former German finance minister Peer Steinbrueck said the Swiss were like Indians running from the cavalry, prompting a Swiss politician to compare him to a Nazi.
To ensure Germans step forward and settle their bills with the tax man, Swiss banks will have to pay 2 billion francs up front, much less than some figures that had been circulated which were seen as too much for the big banks to bear.
Switzerland’s two biggest banks — UBS and Credit Suisse — will probably fork out the bulk of the payment, with the remainder coming from smaller players. The aim is for the banks to be credited if their clients step forward.
The Swiss Bankers Association welcomed the deal but said it handed the banks a bill in the mid-three-digit millions of Swiss francs.
“This deal gives them good opportunities to find a solution for the past and remain tax compliant in the future,” Claude-Alain Margelisch , Chief Executive Office, Swiss Bankers’ Association told Reuters.
Julius Baer, the country’s largest dedicated wealth manger, termed the deal a “pragmatic solution.” Baer paid a fine earlier this year to settle with German authorities and Credit Suisse has had its offices in Germany raided.
US authorities have also been investigating Swiss bank — most recently Credit Suisse. In 2009, the Swiss government cut a deal with Washington to hand over the details of 4,450 UBS accounts in return for the dropping of a damaging lawsuit against the bank.
