Financial Transparency Coalition

By Mark Herkenrath, Alliance Sud, and Nicholas Shaxson

The Swiss government is about to conclude new tax deals with Germany and the UK. As was reported on the Task Force blog recently, and updated on the Tax Justice Blog, the Swiss withholding tax proposal poses a major threat to the EU’s struggle for tax transparency.  In the meantime, reliable Swiss sources have revealed further details of the impending deals.

1. Germany and the UK will no longer require their citizens to declare their Swiss income.

It’s noteworthy that under the bilateral Swiss-EU Savings Tax Agreement, in force since 2005, Switzerland already charges a withholding tax (currently 35%) on savings income of EU citizens and returns the tax anonymously to the respective home country. What’s new about the impending deal is that this extends the withholding tax beyond mere savings income to all kinds of capital income. Also, crucially, Germany and the UK will consider this withholding tax as ‘final’: that is, capital owners will no longer have the legal obligation to declare their Swiss income to the tax authorities in their home country. Unbelievable.

2. Savings income will still be taxed in accordance with the Swiss-EU Savings Tax Directive.

Savings income will still be taxed at 35%, since the new deals with Germany and the UK must not contradict the bilateral Swiss-EU Savings Tax Agreement. However, the deals undermine the potential for a unified move by EU member states to push Switzerland towards automatic information exchange. Germany and the UK, two very important member states, are effectively co-opted by these Swiss deals.

3. The Swiss withholding tax rates will be different for German and UK citizens.

In the agreement with Germany, the (flat) tax rate will be equivalent to the final withholding tax rate that Germany levies internally on capital income – that is, slightly above 25%. With the UK, however, the tax rate will be much higher, to compensate for the fact that in the UK this income would be taxed at progressive rates. According to anonymous (but reliable) Swiss sources, the tax rate will be in the upper range of these rates. This means that for tax payers in the middle range of the progressive system, it might become more expensive to keep their assets in Switzerland (and pay the final withholding tax) than to return them to the UK.

4. While other EU member states are also interested in the Swiss proposal, the US refuses to even consider this.

Swiss newspapers have recently discovered that Greece is very much interested in the Swiss withholding tax proposal. The Swiss government has confirmed this information, but also made it clear that official negotiations have not yet started. The US government, on the other hand, seems to have strictly refused to even consider the Swiss proposal.