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Merkel Government Signs Swiss Tax Deal as Opposition Bridles

Chancellor Angela Merkel’s government signed an agreement with Switzerland aimed at ending a dispute over tax evasion, setting up a clash with German opposition lawmakers who threatened to block the measure.

German Finance Minister Wolfgang Schaeuble and his Swiss counterpart, Eveline Widmer-Schlumpf, signed the accord in Berlin today after ministers gave their approval at Merkel’s weekly Cabinet meeting. The deal introduces a levy on German bank customers while preserving Swiss banking secrecy.

The agreement, completed by negotiators last month, seeks to quell a dispute between the neighboring countries over wealthy Germans holding cross-border accounts with Swiss private banks. It foresees a 2 billion Swiss-franc ($2.2 billion) upfront payment to the German government from banks to cover the failure by their clients to declare holdings, an amount that will later be reimbursed from taxes paid by German customers.

“We are convinced that this agreement solves in a good manner a problem that for years was able now and again to burden relations between the Swiss confederation and Germany,” Schaeuble told reporters at the signing ceremony. “It’s a good and fair result of the negotiations.”

While the accord seeks to recover German tax claims, it also protects bank clients’ privacy, a position that Schaeuble has said is non-negotiable with Swiss officials.

“We’ve both had to make concessions,” Widmer-Schlumpf said. “We’ve also had to deal with huge resistance.”

Bundesrat Showdown

Lawmakers from Germany’s main opposition Social Democratic Party threatened to halt the bill in the upper house of parliament, or Bundesrat, where Merkel’s coalition lacks a majority. SPD floor leader Frank-Walter Steinmeier, the foreign minister in Merkel’s first-term government, called the deal an “abetment to tax evasion.”

Schaeuble, in an interview with the Berliner Zeitung published today, said he is confident the tax accord will pass both houses of parliament.

Beginning in 2013, Swiss banks will levy a 26 percent withholding tax on holdings of Germans with offshore accounts, according to the agreement. The tax on assets from the past will range from 19 percent to 34 percent, depending on the duration of the client relationship and the initial and final amount of capital. Account holders may also disclose their holdings to German tax authorities.

Fully Offset

Tax payments by German dodgers on old, untaxed assets will be fully offset against the 2 billion-franc upfront payment up to a 1 billion-franc cap, according to the deal. A third of the tax payments exceeding that limit will be refunded to Swiss banks, meaning they will be fully reimbursed for the upfront payment after tax dodgers have repaid 4 billion Swiss francs.

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. Relations between Germany and Switzerland soured early last year when German authorities began an investigation into tax evasion based on purchased CDs of stolen bank data.

“The tax agreement does not come without a price tag for the banks,” the Swiss Bankers Association said in a statement on Aug. 10 after details of the negotiations were made public. “The implementation of the measures will cost the banks in Switzerland a mid-three-digit million Swiss-franc amount.”

To contact the reporters on this story: Klaus Wille in Zurich at kwille@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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