Switzerland puzzled by Brussels warning

Swiss Finance Minister Eveline Widmer-Schlumpf is baffled by the EU Tax Commissioner's words Keystone

Swiss Finance Minister Eveline Widmer-Schlumpf has expressed her surprise at a warning issued by the European Commission regarding tax deals.

In a letter sent on Monday, EU taxation commissioner Algirdas Semeta stressed that the 27 member states “should refrain from negotiating, initialling or ratifying agreements with Switzerland” if some of the countries’ provisions interfere with EU legislation.

“The letter is not addressed to us, and I do not know what Semeta’s intention was,” Widmer-Schlumpf told Swiss public radio on Tuesday. She added that previously, the Commission had clearly stated that the individual nations had the authority to settle bilateral tax matters independently.

Semeta’s letter was addressed to Danish Finance Minister Margrethe Vestager, whose country currently holds the rotating EU presidency.

Britain and Germany have already signed so-called “Rubik” bilateral tax agreements with Switzerland. (See sidebar.) Widmer-Schlumpf said that to her knowledge, neither country had plans for any major revisions.

“Just weeks ago, German Chancellor Angela Merkel said explicitly that she wanted to finalise the accord soon,” Widmer-Schlumpf said on Tuesday.

Rubik deals

In his letter, Semeta emphasised that the Commission had had “very constructive discussions” with Berlin and London to ensure that they “modify” their agreements to render them EU-compatible.

“I am confident that a satisfactory solution will be found,” he wrote, noting that his objective was to prevent other countries from exposing themselves to infringement procedures.

Just last year, the European Commission threatened to take Germany and Britain to court if they enforced the Swiss treaties.

Semeta has since acknowledged that EU member states were free to sign bilateral agreements with Switzerland, on condition that they remain within certain legal limits.

Regarding direct taxes in the future, sectors already covered by EU legislation on savings-generated income taxes must be excluded from the field of application of the Rubik agreements, the Commission letter said.

Regarding the past, the regularisation of hidden assets “cannot cover the tax on value-added tax (VAT),” continued the letter, which also mentioned the concessions that Germany and Britain had made with Switzerland. Both countries have pledged to “facilitate” the access of Swiss operators to their national financial services.

EU members would not be able to compromise in areas that are already covered or could be covered in future by “Community harmonisation”, the letter emphasised:

“The principle of the exclusive competency of the EU vis-à-vis the exterior must be respected… This could also concern banking services and investment services.”

According to the commission, the EU’s unity will give it an edge over Bern. Semeta noted that it was “more important than ever to confer a high priority at the Council” to give the Commission the mandate to renegotiate with Switzerland on savings tax agreements.

Uncle Sam

In recent years, Switzerland’s ongoing tax negotiations with the United States have generated more headlines than those regarding the EU.

On Monday, the Swiss House of Representatives followed the Senate in approving a tax deal with the US – making it easier to hand over information about US citizens with Swiss bank accounts.

The revised accord allows for administrative assistance to be provided to the US in matters involving grouped requests for information, based on a suspicious “pattern of behaviour” by people or financial institutions.

US tax authorities will not have to provide names or addresses of its suspects in order to receive assistance. The deal will come into effect when the US has agreed to an overall solution of the tax dispute between the two countries.

For the Swiss government, parliament’s “yes” is a key step in solving the dispute, which has affected 11 Swiss banks. But it is not considered surprising that other countries want to have the same privileges enjoyed by the US.

“If the US gets the details of thousands of clients, then Europe will want the same,” pointed out Pierin Vincenz, chief executive of Raiffeisen Switzerland, in a recent interview in the Swiss newspaper Sonntag.

He also criticised the fragmented Swiss response to a variety of threats and demands from the US and Europe, noting that the Swiss government had generally lowered hurdles for handing over client data to foreign tax authorities that were investigating suspected evasion cases.

Speaking on Tuesday, Widmer-Schlumpf was not willing to discuss potential solutions or modifications to the existing deals. Later this month, she and Foreign Minister Didier Burkhalter are due to go to Brussels.

Rubik

The Rubik principle was devised by the Association of Foreign Banks in Switzerland. 
 
The project wants to separate income from wealth and hand over tax at source to third countries, while keeping the Swiss bank account holder’s anonymity. 
 
The inventors say this strategy will also afford more protection to foreign bank employees in Switzerland from legal action by third countries. 
 
It is hoped that guaranteed anonymity will encourage foreigners with assets being managed in Swiss banks not to take them away.
 
Switzerland agreed to withholding tax deals with Germany in August and Britain in October that preserve banking secrecy.
 
The agreements signed with Germany and Britain allow for a regularisation of non-declared assets held in Switzerland by citizens of these countries.

Where applicable, a lump sum tax payable on deposited capital will be taken by the banks and transferred anonymously to taxation authorities in Britain and Germany. The initial lump sum payments come with the agreement that Germany and Britain will renounce claims on unpaid taxes from the past.
 
The rate of taxation will vary between 19 and 34 per cent. For future taxes on capital, a withholding tax on interest and dividends will be claimed. For Germany, the applicable rate has been fixed at 26.375 per cent, the same rate as within that country. In Britain, the rate will vary between 27 and 48 per cent depending on the category of returns on capital.

(With input from Tanguy Verhoosel in Brussels)