Germany denies strained Swiss relations

Arrest warrants connected with CDs containing stolen customer data have ruffled some German feathers Keystone

The German government says a Swiss decision to issue arrest warrants for three German tax inspectors hasn’t damaged relations between the two countries.

It insisted on Monday that the incident illustrated the need to get a stalled deal on tax evasion approved.

Germany’s centre-left opposition condemned the Swiss move when word of it emerged over the weekend. It is part of an investigation into German authorities’ 2010 purchase of a compact disc containing data on suspected tax cheats.

German Finance Minister Wolfgang Schäuble said at a meeting with European counterparts in Copenhagen that the incident wouldn’t affect the tax deal, and noted that “Switzerland has its criminal law”, which includes punishments for violating bank secrecy.

For a long time the Swiss authorities have only given administrative assistance to other governments in cases of tax fraud (for example falsifying documents) but not evasion (“forgetting” to declare your assets).

It’s a subtle legal difference, incomprehensible for other countries, but one on which banking secrecy has long thrived. Banking secrecy was even enshrined in Swiss law in 1934 – break it and you could end up in prison.

The German government argued the problem would be resolved – and Swiss legal proceedings against the tax inspectors ended – by the planned deal to end a long-running dispute over German tax evaders. That deal, negotiated last year, is being held up by German opposition objections.

Opposition

Steffen Seibert, spokesman for Chancellor Angela Merkel, sought to downplay suggestions that relations between the two countries were strained.

“She sees, as does the whole government, that there are questions that have been unresolved for decades between Germany and Switzerland, and so there are good reasons to have this tax agreement take effect on January 1, 2013,” Seibert told reporters.

The deal would allow Germans with undeclared assets in neighbouring Switzerland to escape punishment by making a one-time payment, and imposes a flat withholding tax on capital gains in the future on German residents’ wealth in Switzerland.

It needs approval from parliament’s upper house, which represents Germany’s 16 states and where Merkel’s government lacks a majority.

That means the government needs support from states governed by the opposition Social Democrats.

However, they want tougher terms than originally negotiated and still aren’t satisfied with changes proposed by Switzerland.

“Monstrous”

The tax inspectors targeted by Swiss prosecutors in their investigation of alleged economic espionage regarding stolen data from Credit Suisse come from the opposition-run state of North Rhine-Westphalia, which holds regional elections on May 13.

State governor Hannelore Kraft has described the Swiss move, which would mean the inspectors might risk arrest if they tried to enter Switzerland, as “monstrous”.

A senior Social Democratic lawmaker, Thomas Oppermann, told German tabloid Bild on Monday that the government should offer the tax inspectors the country’s highest decoration, the Order of Merit.

Former German Finance Minister Peer Steinbrück, who in 2009 aroused much anger in Switzerland when he said the Swiss were like “Indians” running scared at the sight of the US cavalry after the Swiss government gave in to strong international pressure on banking secrecy, described the current incident as a “scandal”.

German media reaction

But while some individuals sought to make political hay while the sun shined, German newspapers were more level-headed.

The Süddeutsche Zeitung said outrage in Germany was understandable but pointed to the more liberal concept the Swiss have of the state – “the Swiss understand taxes not as something demanded by the authorities, but the contribution to society of individuals, who themselves decide how much to pay”.

The Frankfurter Allgemeine Zeitung (FAZ) advised the three tax inspectors to spend their next holiday in Austria rather than Switzerland. It added that the issue was not about three civil servants but about the relationship between sovereign states and the question of whether a country ought to resort to legally dubious methods to implement its laws.

“The person who wants everything sometimes gets nothing,” it said.

Die Welt agreed, pointing out that Switzerland wasn’t some colony into which the cavalry could be sent. “With sovereign states there’s only one solution: negotiate. Negotiate how to avoid the tendency – not only of Germans – to hide money from the tax man in Switzerland”.

…and Swiss reaction

Swiss editorialists struggled to find a common line.

“Once again, the German need for justice and the Swiss understanding of state and democracy crash into each other headfirst,” wrote the Neue Zürcher Zeitung.

“Let’s forget the tax deal with Germany,” urged the SonntagsZeitung. “In terms of legal certainty, Switzerland has made clear that it’s not acceptable for German tax inspectors to snap up stolen customer data from Switzerland and break laws.”

Tabloid Blick said the arrest warrants would represent a “further escalation” and countermeasures would be just around the corner.

Nevertheless, the warrants were important, it said, because they clearly showed on whose side the Swiss law stood: that of the foreign tax cheat.

“Being a safe for as many people as possible who cheated their own country was a business model for a long time,” it said. “It isn’t any longer.”

Big deal

The Swiss-German tax accord, which has not yet been ratified by Germany, has been under threat after German opposition parties said it was too soft on tax evaders who had stashed an estimated SFr150 billion ($163 billion) in secret accounts.
 
Under the accord, effective from next year, existing funds in Swiss banks will be taxed at a rate of between 19 per cent and 34 per cent, based on how long the money has been stashed away and the rate of capital gains.
 
Future investment income and capital gains will be taxed at 26.375 per cent. However the states have stated they want that rate to be 35 per cent, comparable with German levels.
 
Swiss banks will pay SFr2 billion up front to Germany within 25 days of the deal being ratified. A provision prevents tax dodgers from moving their funds to another safe haven.