Swiss, Germans Agree to Tax Accounts

EUROPE BUSINESS NEWS

Updated April 5, 2012, 8:48 p.m. ET

Swiss, Germans Agree to Tax Accounts

Move Would Help Erode a Financial Haven; Berlin Opposition Vows to Block Deal as Too Lenient

By ANDREA THOMAS and NEIL MACLUCAS

BERLIN—German and Swiss government officials signed a deal that would force wealthy Germans to pay taxes on their Swiss investment income—in an effort to end a dispute between the two neighbors over tax evasion and bank secrecy.

The pact, if culminated, would let the German investors retain their anonymity, while generating billions of euros in tax revenue for Berlin.

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Germany's Peter Gottwald, left, exchanges the pact with Switzerland's Michael Ambühl in Bern on Thursday.

But the deal—which came after Berlin and Bern made last-minute amendments in order to make it more appealing to German opposition leaders—must first be approved by both countries' parliaments.

That is far from certain, with those opposition lawmakers saying they plan to veto the pact. "We believe it would be irresponsible to sign this deal, which is a slap in the face of every honest taxpayer," said Sigmar Gabriel, leader of the Social Democrats, on Thursday.

The two countries appeared to have ended their long-running tax dispute in September, signing a draft version of a deal that would tax German citizens' investment income in Switzerland. Some Germans transfer their assets to Switzerland in a bid to avoid investment-income taxation in Germany; this income is currently untaxed in Switzerland.

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The Swiss government and Germany's ambassador signed the amended tax agreement in Bern on Thursday. But German Finance Minister Wolfgang Schäuble will need the support of the federal states led by the Social Democrats, or SPD, and the Greens before the German Parliament can vote on it.

Without their support, the deal likely won't be approved in Germany and will have to be renegotiated.

"With this amended tax deal we have found a fair compromise for both countries, and both sides have made allowances to achieve this," Swiss Finance Minister Eveline Widmer-Schlumpf said at a briefing Thursday.

Germany's finance ministry said Berlin and Bern agreed Wednesday to higher tax rates than what had been planned in the September draft. Unreported savings of wealthy Germans will be taxed at 21% to 41%, up from the previously planned 19% to 34%, while future capital gains will be taxed at 26.4%.

In addition, those Germans inheriting bank accounts in Switzerland can choose between reporting their new assets and paying the respective individual tax rate or paying a tax rate of more than 50% and retaining anonymity.

The deal will need to be ratified by lawmakers in both countries if it is to be implemented by 2013, and the SPD and Greens-led German states may still block it in the German upper house, claiming it is too lenient on tax evaders.

Ms. Widmer-Schlumpf said the deal will be discussed by the Swiss Parliament in June, and the Swiss government won't make any further changes to the contents of the agreement. "We hope the Swiss Parliament agrees to the deal as it stands, but if it doesn't then we will have to reopen discussions with Germany, as there's no alternative to that," she said.

Switzerland, which has developed a $2 trillion offshore financial sector over the years, is battling to preserve its bank-secrecy laws in the face of mounting international pressure from countries seeking to repatriate taxes owed by citizens who have stashed funds in Swiss accounts.

Germans are estimated to have around 150 billion Swiss francs (around $160 billion) deposited in secret Swiss accounts, and with the continuing euro-zone debt crisis straining public budgets, the country is eager to get the money back that it says it is owed.

The Swiss and U.K. governments recently signed a similar tax agreement, which will be presented to their respective parliaments this year for implementation in 2013. The Swiss finance minister told reporters the government is discussing similar deals with Greece and Austria.

The agreement with Germany comes as tensions between the two countries are high. Swiss authorities last week issued a warrant for the arrest of three German tax investigators who were looking into suspected tax evasion using stolen bank data from Credit Suisse Group.

The German government has expressed understanding for the Swiss warrants, which are a result of the neighboring states' different views over the same element of an offense.

The German government defends the tax investigators' right to pursue tax evasion because, in Germany, tax evasion is tax fraud and considered a criminal offense. Swiss law, unlike any other, makes a distinction between tax evasion and tax fraud; only the latter is considered a criminal offense.

The German government has also called on opposition parties to back the tax deal because it would prevent similar conflicts resulting from different legal systems once the agreement becomes effective.

Write to Andrea Thomas at [e-mail]

A version of this article appeared April 6, 2012, on page A9 in some U.S. editions of The Wall Street Journal, with the headline: Swiss, Germans Agree to Tax Accounts.

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