German Lawmakers Reject Pact on Undeclared Swiss Accounts

Photographer: Gianluca Colla/Bloomberg

The collapse of an accord that would have imposed a withholding tax on offshore accounts held by Germans is a setback for Swiss banks as they try to stem withdrawals by European customers concerned about a widening hunt for tax dodgers. Close

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Photographer: Gianluca Colla/Bloomberg

The collapse of an accord that would have imposed a withholding tax on offshore accounts held by Germans is a setback for Swiss banks as they try to stem withdrawals by European customers concerned about a widening hunt for tax dodgers.

Germany’s upper house of Parliament rejected an accord over undeclared bank accounts in Switzerland, dealing a blow to Swiss efforts to retain European clients spooked by a crackdown on tax evasion.

The Bundesrat, controlled by opposition parties after state election losses by Chancellor Angela Merkel’s Christian Democrats, voted to block the agreement signed by the two nations last year. While details of today’s vote in Berlin weren’t disclosed, the outcome had been on the cards for months with the Social Democratic and Green parties lobbying against the accord.

The collapse of an agreement that would have imposed a withholding tax on offshore accounts held by Germans is a setback for Swiss banks as they try to stem withdrawals by customers concerned about a widening hunt for tax dodgers. German opposition parties say the accord contains too many loopholes for tax evaders and keeps client identities secret.

“If the tax treaty definitely fails, the pressure on the Swiss banking industry will increase,” said Heiko Kubaile, a partner and head of the German Tax & Legal Center at KPMG in Zurich. “Ultimately, the reputation of Switzerland’s financial center will be damaged.”

Mediation Committee

German Finance Minister Wolfgang Schaeuble said he plans to call a mediation committee with the opposition to look for a compromise. A formal decision on the committee will be made by Merkel’s Cabinet on Nov. 28. The Social Democrats will continue to oppose the initiative, Steffen Rulke, a Berlin-based spokesman for the party, said Nov. 21.

“I am disappointed that a decision was made based on party politics and against solving a problem that has long been simmering,” Schaeuble told reporters in Berlin today. “Significant revenues for the federal government, the states and the local government have been refused.”

Germany may lose 13 billion euros ($16.8 billion) in tax revenue next year without the accord, Thomas Schaefer, finance minister of the state of Hesse, said in a speech to the Bundesrat.

“The SBA takes note of this decision with regret,” the Basel-based Swiss Bankers Association, which represents more than 300 banks, said today in an e-mailed statement. We “continue to hope that the mediation committee will be called on and that a political solution will be found before the end of the year.”

Secrecy Crumbles

Switzerland built the world’s biggest offshore wealth center during an era of “black money” that started to crumble when the U.S. sued UBS AG (UBSN) three years ago. The so-called Rubik accord with Germany would have retained an element of banking secrecy, even as a crackdown on tax evasion by the U.S. and European authorities leads to demands for more transparent arrangements, including automatic exchange of information.

Switzerland signed the bilateral agreements with Germany, Austria and the U.K. after agreeing in March 2009 to meet international standards and avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. The U.K. and Austrian accords were ratified earlier this year.

“Switzerland remains prepared to bring the ratification process with Germany to a successful conclusion,” Swiss Finance Minister Eveline Widmer-Schlumpf said today in a statement. “The agreement ensures implementation of Germany’s legitimate tax claims and at the same time protects the privacy of bank clients.”

U.S. Investigation

The proposed German deal involved a tax of 21 percent to 41 percent on so-called legacy assets from the past.

The Swiss Finance Ministry said it’s negotiating similar agreements with Italy and Greece, adding that other countries have also shown interest in the withholding tax.

U.S. and European authorities are analyzing information from thieves, whistle-blowers and client disclosures to probe the alleged role of Swiss banks in fostering tax evasion by wealthy customers.

The U.S. Department of Justice has investigated 10 Swiss financial firms on suspicions they helped Americans hide money from the Internal Revenue Service. Julius Baer Group Ltd. (BAER), Credit Suisse Group AG (CSGN) and HSBC Holdings Plc (HSBA)’s Swiss unit have said they expect to pay a fine to the U.S. authorities to settle the probes.

Switzerland agreed in June to implement the U.S. Foreign Account Tax Compliance Act, which requires banks to report information on consenting American account holders directly to the IRS. Swiss lawmakers also voted in September to allow group requests for information on Americans with offshore accounts in the Alpine nation.

Stolen Data

“The way the U.S. has negotiated with Switzerland sets a good example for Germany of how it can be done better,” Thomas Oppermann, a parliamentary floor leader for the German Social Democrats, said Nov. 20.

German authorities have spent 9 million euros to buy disks with bank-account data, leading to more than 3 billion euros in additional tax payments nationwide, North Rhine-Westphalia’s finance ministry said in September. The ministry said this month that more than 7,100 citizens in the German state have reported themselves as tax evaders since 2010.

“The problem, next to the unfair treatment of past tax evaders, is the fact that we would not have the possibility to do our own investigations,” Norbert Walter-Borjans, finance minister of North Rhine-Westphalia, told reporters after his state voted against the accord.

Voluntary Disclosures

Merkel’s government views purchases of so-called tax CDs by German states as the wrong approach and has said the accord with Switzerland is a more reliable way to catch evaders than buying Swiss bank data from intermediaries.

“A lot of German clients will use the existing voluntary disclosure regime where they pay taxes, interest and possibly a penalty,” said Gerd Kostrzewa, a lawyer working in Dusseldorf and Zurich for Heuking Kuehn Lueer Wojtek. “The government will keep buying stolen data and may shame some VIP tax offenders. It could also start issuing collective requests for account holders’ identities.”

To contact the reporters on this story: Joseph de Weck in Berlin at jdeweck@bloomberg.net; Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net

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