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UPDATE 1-Switzerland, UK sign withholding tax pact for 2013
March 20, 2012 / 5:17 PM / 6 years ago

UPDATE 1-Switzerland, UK sign withholding tax pact for 2013

* Swiss, British agreement paves way for pact to take effect in 2013

* Opposition in Germany to similar deal

* Switzerland seeking withholding tax deals in Europe, further afield (Adds expert comment)

ZURICH, March 20 (Reuters) - Switzerland and Britain signed an agreement on Tuesday to begin taxing funds held by wealthy British clients of Swiss banks from next January, after altering the terms of a withholding tax deal to appease the European Commission.

Switzerland is trying to finalise deals with Britain and Germany to leave Swiss banks enough time to make plans for levying the tax before it goes into effect in 2013. The British accord is significant because it contrasts with opposition in Germany to a similar deal.

The EU backed down from its opposition to the British deal two weeks ago after Switzerland agreed to bring the pact into line with EU rules.

Specifically, interest income will now be subject to an existing EU-Swiss agreement of 35 percent, plus an additional 13 percent to ensure tax compliance, which adds up to an unchanged rate of 48 percent tax.

“With this model, withholding tax, we have a good means to meet possible justified claims of the taxpayer’s home country, and still (respect) our Swiss legal system that grants anonymity to the tax payer. We have a good model to meet both requirements,” Swiss President and Finance Minister Eveline Widmer-Schlumpf said in Brussels on Tuesday.

The deal comes as British finance minister George Osborne prepares to present the country’s budget statement on Wednesday. Only a narrow majority of respondents in a Reuters poll think the government will balance its cyclically adjusted budget by the 2016/17 financial year.

Switzerland’s deals with Britain and Germany, struck last year, are seen as a litmus test of whether the country can seal similar deals across Europe and further afield. However, the EU challenges and German domestic opposition have thrown the deals into question.

The EU may well mount another challenge to this deal, according to Richard Murphy, a chartered account and director of Tax Research U.K., a research think-tank.

“I don’t think the European Union will be very happy about what is going on, and I believe the EU will look at arrangements to block it,” Murphy said. He roundly criticized the deal as “designed to encourage tax evasion.”

Switzerland is seeking such deals in order to preserve bank account secrecy, the cornerstone of the country’s $2 trillion financial services industry. Secrecy has been under attack in recent years as cash-strapped governments crack down on undeclared funds held in hidden Swiss accounts. (Reporting By Katharina Bart, contribution by John O‘Donnell in Brussels; Editing by Ruth Pitchford and Hugh Lawson)

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