Swiss Banks Said to Be Close to Settlement in German Tax Evasion Dispute
Swiss Banks Said to Be Near Settlement in German Tax Dispute
Gianluca Colla/Bloomberg
UBS AG, Switzerland’s largest bank, will analyze the treaty when it’s announced, said spokesman Dominique Gerster.
UBS AG, Switzerland’s largest bank, will analyze the treaty when it’s announced, said spokesman Dominique Gerster. Photographer: Gianluca Colla/Bloomberg
Swiss banks may initially pay at least 4 billion Swiss francs ($4.9 billion) to settle a dispute over tax evasion by wealthy German clients, two people familiar with the matter said.
The payment would be part of a larger sum covering the failure by customers to disclose undeclared money over the past 10 years, said the people, who declined to be identified because the negotiations between Switzerland and Germany are private and no final agreement has been reached.
“German tax authorities are certainly not going for peanuts,” said Stefan Bach, a tax analyst at the DIW economic research institute in Berlin. In total, Swiss banks may pay as much as 15 billion francs to resolve the issue of so-called legacy assets, he said.
The outlay for the past is part of Swiss talks with Germany and the U.K. over a proposed withholding tax on clients with offshore bank accounts. While part, or all, of the amount would later be “reimbursed” to the banks from taxes paid by their clients, according to the Swiss finance ministry, the settlement may trigger outflows by Europeans who question the value of cross-border accounts as secrecy crumbles.
“I expect major withdrawals by clients from Germany and the U.K. as they are disgruntled by the retroactive effect of the agreement,” said Daniel Fischer, the founder of Zurich- based AFP Fischer & Partner, which specializes in banking law. “Clients are so angry that Swiss banks may not be able to recoup the full upfront payment.”
Blocking Accounts
Some Swiss banks have started blocking clients from gaining full access to offshore accounts in preparation for the tax treaties, said Swiss banking ombudsman Hanspeter Haeni, who last week reported an increase in complaints from customers. He didn’t say which banks are affected.
“The answer to the question of whether banks are allowed to do that isn’t at all clear,” he said.
While the size of the initial payment and the formula used to determine back taxes owed by German and British clients haven’t been disclosed, Switzerland has reached a solution on a “political level,” Finance Minister Eveline Widmer-Schlumpf told NZZ am Sonntag on July 3.
“Now the question is whether the banks are willing to make such a payment,” she told the Zurich-based newspaper. “Some of the banks are signaling their consent, others say “that’s out of the question.’”
‘Legal Certainty’
The initial payment will be 4 billion to 8 billion francs, the people familiar said. Germany originally asked for an amount closer to 10 billion francs, one of the people said.
The agreement may be announced after the Swiss government’s summer recess, said Mario Tuor, a spokesman for Switzerland’s State Secretariat for International Financial Matters. Germany’s finance ministry declined to comment because the negotiations are still continuing.
UBS AG (UBSN), Switzerland’s largest bank, will analyze the treaty when it’s announced, said spokesman Dominique Gerster.
“The de-criminalization of bank employees and legal certainty about the past are the minimum preconditions, without which a tax treaty doesn’t make sense,” Juerg Zeltner, co-head of UBS’s wealth management and Swiss bank unit, told Finanz und Wirtschaft in an interview on July 6.
Julius Baer Group Ltd. (BAER), which agreed in April to pay German authorities 50 million euros ($71 million) to end a separate investigation over undeclared client assets, declined to comment. Marc Dosch, spokesman for Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, also declined to comment.
German Assets
The banks are currently discussing how to divide the upfront payment to German and U.K. tax authorities, according to Rebeca Garcia, a spokeswoman at the Basel-based Swiss Bankers Association.
The total sum could be at least 20 billion euros, based on undeclared assets held by Germans in Swiss banks, said Thomas Eigenthaler, head of the Berlin-based German tax union.
About 69 percent of the 280.6 billion francs of offshore assets held by German clients in Swiss banks was undeclared, according to estimates by Helvea SA two years ago. That share may have dropped to 50 percent, said Peter Thorne, a London- based analyst with Helvea who hasn’t updated the figures.
Switzerland’s commitment to regulatory and tax compliance will put pressure on the country’s banks as western European clients repatriate their wealth, Boston Consulting Group said in a May 31 report.
Outflows
Europeans and North Americans accounted for about 48 percent of the 1.96 trillion francs held in offshore Swiss bank accounts last year, down from 63 percent in 2007, according to Boston Consulting. That share may slump to 37 percent by 2015 as those clients flee a crackdown on tax evasion, the firm said.
“We think banks will lose around 50 percent of their undeclared cross-border assets after repatriation and tax settlement effects,” said Matt Spick, an analyst at Deutsche Bank AG in London, who expects Switzerland to negotiate similar treaties with France, and possibly Italy, by late 2012 or 2013.
Switzerland agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. UBS agreed to pay a fine of $780 million and turn over data to the U.S. on previously secret accounts to avoid prosecution for helping Americans evade taxes.
The country’s commitment to attracting only taxed assets will increase the legal security and competitiveness of its financial center, Michael Ambuehl, state secretary to the finance ministry, said last month.
More Competition
“The banking landscape in Switzerland may become more competitive, and the banks will have to market the stability of the country, their first-rate services and their global market knowledge,” said Annemarie Ruegger-Vonrueti, a tax expert at Deloitte AG in Zurich. “The money just won’t flow in as it might have in the past.”
Switzerland is also negotiating better access for the country’s banks and insurers to markets in Germany and the U.K. as part of the withholding tax deal.
Under the proposed tax on interest, dividends, capital gains and investment income, revenue generated would go to treasuries in the U.K. and Germany while client identities would remain secret.
“These bilateral agreements are going to allow clients to stay secret for a bit longer, but they’re going to have to pay” that new tax, said Ray Soudah, head of MilleniumAssociates AG, a Zug, Switzerland-based advisory firm for banking mergers.
Even that element of secrecy is threatened by a proposed clause that would allow Germany, in a limited number of cases each year, to ask for information on clients without knowing their full details, said Peter V. Kunz, head of the business law department at the University of Bern.
“That would be the nail in the coffin of banking secrecy,” said Kunz. “Clients can’t be sure whether information about them will be requested.”
To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net; Carolyn Bandel in Zurich at cbandel@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net
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