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| Andreas Moll |
On March 20 2012, the United Kingdom and Switzerland signed a
protocol of amendment that supplements the withholding tax agreement of
October 6 2011. The aim of the agreement is the effective taxation of UK
taxpayers' assets in Switzerland. The agreement provides for
withholding tax on future investment income and gains on assets, as well
as taxing UK taxpayers' previously untaxed assets in Switzerland.
The agreement between the UK and Switzerland is the first agreement
covering the issue of untaxed assets of foreign residents' Swiss bank
accounts. Based on banking secrecy, once implemented to protect bank
clients' privacy, Switzerland used to grant judicial assistance to other
states only when strict requirements were met. Claiming that Swiss
banks would use banking secrecy to instigate foreign residents to commit
tax fraud, several countries, including the United States, the UK and
Germany, have increased pressure on Switzerland in recent years to ease
the requirements for obtaining information on Swiss assets in cases of
presumed tax fraud.
While these states, and even more the EU, would prefer to establish a
system based on the automatic exchange of information in the area of
investment income to ensure accurate taxation, Switzerland is not
willing to totally give up its banking secrets. As a result, the
agreement between the UK and Switzerland combines these two concerns:
the protection of bank clients' privacy and the implementation of
legitimate tax claims. In accordance with the agreement, the bank client
may instruct the bank not to disclose any information to the UK tax
authorities. However, in such case, withholding tax on investments of UK
taxpayers, which corresponds in terms of content to the UK's taxation
of income and gains, will be imposed in Switzerland and paid to the UK.
It is not yet clear if this agreement is compliant with EU law. José
Manuel Barroso, president of the European Commission, has declared in
the media that the European Commission would never accept an agreement
between a member state and a third state if it was not completely in
line with EU law. In particular, the EU, which clearly prefers the
system of automatic exchange of information, has always been of the
opinion that a clause pursuant to which all tax duties are fulfilled by
levying a final withholding tax must not be part of such bilateral
agreements. In the agreement between the UK and Switzerland, however,
the UK explicitly acknowledges that the proposed system is an equivalent
solution.
It is planned that the agreement will come into force on January 1
2013 and it can be expected that it will be only the first of many more
to come. On March 30 2012, an amendment to a similar agreement entered
into by Germany and Switzerland was signed and there are negotiations
between Switzerland and other member states of the EU on the same issue.
Despite the uncertainty with respect to compliance with EU law and
thus the risk of the EU initiating infringement procedures, member
states seem keener to conclude a bilateral withholding tax solution with
Switzerland than to wait for the EU and Switzerland to agree on a
system of an automatic exchange of information at some point in the
future.
The coming years will show whether Switzerland will have been able to
enduringly reduce the pressure by entering into bilateral agreements or
whether these agreements were just the first step in loosening Swiss
banking secrecy, finally ending in the automatic exchange of
information.
Andreas Moll