Britain dismisses Swiss taxation plan

Gordon Brown is leading the charge against Swiss banking secrecy Keystone

Britain's chancellor, Gordon Brown, has rejected as "insufficient" a Swiss offer to tax income on European Union citizens' savings in Switzerland.

Speaking at a meeting of EU finance ministers in Brussels, Brown insisted Swiss banking secrecy had to be dismantled, as part of a tighter taxation regime in Europe.

Brown was echoing comments made to the Swiss economics minister, Pascal Couchepin, when he held talks with British ministers on the issue on Monday.

“As far as the offers Switzerland made [are concerned] they are insufficient [and] unsatisfactory,” said Brown.

Britain is furiously resisting the withholding tax proposal by Switzerland, which is equally determined not to give way over banking secrecy.

Under Bern’s proposal, Swiss banks would deduct tax from EU citizens’ savings and pass the money on to Brussels without revealing the details of the account holders.

The alternative, which the EU favours, is for Switzerland to exchange information on EU citizens’ assets in Swiss banks, which would require the lifting of banking secrecy.

Cross-border income

“A withholding tax on cross-border income flows will almost invariably result in the wrong amount of tax being paid and in the wrong country,” said Brown in Brussels. “The way forward is an exchange of information.”

Observers say Britain fears a withholding tax would threaten the City of London’s lucrative trade in Eurobonds.

The EU has set itself a deadline of the end of this year to persuade third countries such as Switzerland and the US to agree to an exchange of information, as part of plans to harmonise tax collection across the Union.

EU members such as Luxembourg, Belgium and Austria say they won’t weaken their own banking secrecy laws until third countries do so because it would otherwise put them at a competitive disadvantage.

At last month’s meeting of EU finance ministers, the internal market commissioner Frits Bolkestein, said Brussels might consider sanctions against Switzerland if Bern refused to give way.

On Monday, he supported Gordon Brown’s position at a European Parliament Committee meeting. “The Swiss government is still reluctant to go beyond a proposal for levying a simple withholding tax. At the moment, I cannot consider the Swiss proposal [sufficient]. I hope they would be able to go beyond that.”

Lack of support

Observers say the sanctions threat is unlikely to be enforced, as several EU members have said they won’t support the plan.

They include Luxembourg, which also has banking secrecy and which is one of Bern’s staunchest allies in the tax dispute.

Luc Frieden, the Luxembourg treasury minister, recently visited Lucerne for a business conference, where he explained his country’s stance.

“We do not say that we want to uphold [Swiss] banking secrecy,” Frieden told swissinfo.

“We want to find a way to tax – in a fair and reasonable way – those who want to put their savings in another country than their country of residence,” he said.

“That is why we are [supporting] a withholding tax – so that the Luxembourg citizen can put his money in Germany, where he will be taxed there and we get some money back.

“If you look at banking secrecy in that way, it complies with all moral obligations.”

Compromise

Frieden said the EU was on the verge of finding a solution, although resistance by Britain was slowing progress.

“The breakthrough is on the table,” he said.

“It is only for certain countries, especially the United Kingdom, to accept the coexistence model [of information sharing and a withholding tax].

“We have been discussing the taxation of savings for more than ten years, and I think it’s a failure for Europe if we can’t agree… but that requires some countries to compromise.”

Switzerland’s refusal to back down on banking secrecy has seen it accused of being a friend of the tax cheat, and in one case, of behaving like the “Iraq of the Alps”.

But despite the vitriol, there are indications it may get its way.

EU and Swiss negotiators held talks last week to discuss details of the withholding tax proposal… a clear sign that more and more EU members are coming around to the idea.

swissinfo with agencies

in brief

Britain is resisting a withholding tax proposal by Switzerland, which is equally determined not to give way over banking secrecy.

Under Bern’s proposal, Swiss banks would deduct tax from EU citizens’ savings and pass the money on to Brussels without revealing the details of the account holders.

The alternative, which the EU favours, is for Switzerland to exchange information on EU citizens’ assets in Swiss banks, which would require the lifting of banking secrecy.