Of Special Interest
12th August 2011
Swiss / German withholding tax - template for future?
Switzerland and Germany have reached an agreement for a withholding tax (Abgeltungssteuer) to be applied against assets of German citizens in Swiss banks. The deal still requires ratification from the Swiss Federal Council and the German federal government with a planned implementation of early 2013. The agreement is very important for several reasons. First, many estimates suggest that the assets held by German citizens in Swiss private banks are greater than the assets held by any other nationality with the possible exception of the Swiss. Second, this deal could well form a template for agreements with many other nationalities.
There are two rates of tax, a 'catch up' rate of 34% which is for regularisation - to make up for some of the tax not paid previously. On an ongoing basis the tax rate for most clients is to be between 20% and 25%. Swiss banks are also to make an upfront payment of CHF 2bn (€1.9bn £1.7bn $2.7bn ¥210bn Y17.6bn) to be offset against tax receipts collected.
Switzerland sees the deal as a victory in that it ends the threat of legal and political action against the country and its banks. It is also able to claim that there is no breach in financial privacy (whilst names are shared details of the financial transactions and balances are not). Importantly it is also practical to implement. The Swiss Bankers Association believes the cost to banks will be "mid-three digit million Swiss Franks". Patrick Odier, Chairman of the SBA, says of the agreement: "Overall, my assessment of the tax agreement is positive. It is an important milestone for the Swiss financial centre. As a banker, I am especially grateful that clients have been offered a fair solution for regularising their assets. As promised, the Swiss banks have abided by their duty of fiduciary responsibility to their longstanding clients."
Swiss private banks potential loss of significant business from the crumbling of the tax haven status of the country is for the moment at least countered by the safety benefit Swiss banks can offer. At a time when people have concerns about banks in many countries, and what will happen to the currency of other countries they are based in, few question the soundness of the Swiss banks or the security of the Swiss Frank.