EU gives way on banking secrecy – for now

Swiss banking secrecy can continue following the EU's decision Keystone

The European Union has backed away from demands that Switzerland and three EU states scrap banking secrecy.

Brussels had been trying to force countries to share information about savings income to combat tax evasion, but EU finance ministers on Tuesday agreed to exempt certain states.

Under the deal, Switzerland and three EU countries would be able to levy a withholding tax on EU citizens’ savings in their banks instead of exchanging information about account holders.

The deal, drafted by the Greek EU presidency, is almost exactly the same as a Swiss compromise proposal, which had earlier been firmly rejected by the EU.

Swiss negotiators say that although pressure on Bern has eased for the time being, Brussels remains determined to impose a system of automatic exchange of information across Europe.

“It would be an illusion to believe that the subject of banking secrecy would be off the table forever,” Robert Waldburger, a senior Swiss tax negotiator, was quoted as saying.

Withholding tax

Tuesday’s agreement allows three EU states – Belgium, Austria and Luxembourg – to retain banking anonymity. In exchange, they will levy a withholding tax on income from savings.

The other 12 EU member states would exchange information about account holders so their savings income could be taxed directly. The plan is expected to take effect on January 1, 2004.

EU finance ministers have agreed that the withholding tax for three states will be increased gradually to 35 per cent. From 2004 to 2007, it will be levied at 15 per cent, for the following three years at 20 per cent and from 2010 at 35 per cent.

The deal is a major climbdown by Brussels, which has been applying heavy pressure on the Swiss for more than year, including threatening Bern with sanctions if it did not relax banking secrecy.

Linchpin

Even though it is not an EU member, Switzerland unwittingly became the linchpin in Brussels’ efforts to impose a uniform savings tax regime across the Union.

Belgium, Austria and Luxembourg made their participation conditional on third states such as Switzerland doing the same.

But Bern refused to budge on the issue of banking secrecy, saying it would only consider a withholding tax.

The Swiss offered to deduct the tax from EU citizens’ savings income in Swiss banks and send most of the money to the relevant countries’ tax authorities. No exchange of information about the account holder would take place.

Continuing pressure

Correspondents say the EU is likely to continue pressuring Switzerland behind the scenes to scrap banking secrecy because Brussels’ eventual aim is complete tax harmonisation across the Union.

Swiss private banks have already given the government notice that they will force a referendum on closer EU ties if Bern gives away too much.

Bankers fear that the Swiss government’s ongoing negotiations with the EU over a series of bilateral accords will eventually lead Bern to accede to Brussels’ demands on tax in order to secure other crucial agreements.

Switzerland’s financial sector accounts for over 12 per cent of gross domestic profit, and the country manages about 35 per cent of the world’s private and international offshore funds, estimated at $2 trillion (SFr2.89 trillion).

swissinfo, Jonas Hughes

Key facts

The EU agreed that Switzerland and EU states Luxembourg, Austria and Belgium can keep their banking secrecy rules.
They must instead levy a withholding tax on income from savings accounts.
The tax will gradually rise to 35 per cent by 2010.
The other 12 EU states will have to share data about account holders in their countries.