IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
After being seriously blamed by Italian Minister of finances Giulio Tremont last month, Switzerland finally finds itself largely approved on its private savings policy in the recently revealed by the EU Commission report on enforcement of taxation on savings regulation. As a matter of fact, France is the only EU country to accuse Swiss banks to implement mechanisms allowing some of the savings on Swiss bank accounts to avoid taxation in accordance with the agreement signed with the EU in 2004. The conflict opposing Switzerland and the EU on savings taxation lasts from several years now. Here is a brief history of the issue by Pierre Bessard, IREF fellow.
Last year, the European Council has welcomed the readiness of Switzerland to consider an extension of the scope of the savings taxation agreement, once the EU has finalized its work on the revision of the savings taxation directive. The withholding tax agreement for savings income between Switzerland and the EU has been operational since 2005 with tax revenues in excess of CHF 535 million in 2009, to the benefit mostly of the Italian, German and French governments. Switzerland adamantly refuses to adopt an automatic exchange of information, the EU’s official policy, in order to preserve the financial privacy of banking clients. Brussels is expected to take up the automatic exchange of information issue, which also concerns Austria and Luxemburg, in 2017. The Swiss government has put forward as a lasting alternative the implementation of a tax at source for all revenues of non-resident clients of Swiss banks. This proposal, which emerged from the banking sector itself as a way to preserve banking secrecy, is controversial, as it would extend the Swiss banks’ role as tax-collecting entities. However, its appeal for heavily indebted governments has led to progress for this plan in 2010, although the EU remains sceptical towards a solution that goes against its efforts to centralize and standardize policy across the continent. Two member states, Germany and Britain, bypassed Brussels and signed bilateral agreements with Switzerland on this issue after exploratory talks conducted by a joint working group. According to the agreements, negotiations will take place between these two states and the Swiss government to “further intensify cooperation in financial and tax matters” and to “strengthen long-term legal security for market participants”. Eventually this should lead to improved market access for Swiss banks directly from Switzerland in European domestic markets.
The agreements seek a “fair and lasting” solution in the interests of both sides. German and British taxpayers should not be deterred from holding a bank account in Switzerland. In future, however, the possible risk of tax evasion should not impact on the investment decisions of taxpayers from those countries. During the exploratory talks, the parties also agreed on a solution which respects the protection of bank client privacy. Consequently, the automatic exchange of information will no longer be an issue in relations between the two contracting states and Switzerland. Further, the solution will apply after the entry into force of the agreement to be negotiated (no retroactive effect). The solution, the details of which are to be clarified during the negotiations, covers the following points in particular: the regularization of past untaxed existing assets; the introduction of a final withholding tax for the future on investment income (at a rate to be negotiated). After the tax has been paid the tax obligation towards the country of domicile will have been fulfilled. Extended administrative assistance has been agreed in order to prevent any possibility of circumventing the withholding tax. This envisages that the German and British authorities can submit a request for administrative assistance which states the name of the client, but not necessarily the name of the bank. Nevertheless, the number of requests that can be submitted is limited and must be well founded. “Fishing expeditions” are not possible. Finally, the package includes measures to decriminalize banks and their staff.
This text is extract from IREF’s Yearbook on Taxation in Europe 2011