Swiss face sanctions threat

Date: 07/12/00

By Tim Jones

GERMAN Finance Minister Hans Eichel is threatening retaliation against Switzerland unless the EU's third-largest trading partner agrees to adopt a version of the Union's new common savings tax regime.

"If they do not comply, it could happen that we then talk about sanctions," warned Eichel after EU finance ministers agreed that from 2003 all but three Union members will pool information on non-residents' savings income, so allowing their home governments to impose a levy on them.

The Swiss have so far refused to adopt such a regime, arguing that they already exact a hefty 35% withholding tax on interest income and that their banking secrecy laws have never stood in the way of criminal investigations.

Eichel's officials declined to specify what form any sanctions might take, but one source pointed out that Switzerland wants to kick off a new round of negotiations with the EU following last year's groundbreaking omnibus deal on free movement, transport, agriculture, research and public procurement.

"The more integrated they want to be, the more they will be expected to comply with our rules - all of them," said the source.

He added that no pressure would be brought to bear on the 12 Union member states which have still to ratify last year's deal, even though it is due to take force in July 2001 - six months later than first planned.

The warning will inject urgency into the fiery internal Swiss debate over EU membership. The New European Movement, Nomes, announced in October that it would push for a new referendum with the aim of joining the Union in 2006, but they are adamantly opposed by a majority of German-speaking nationals.

German politicians argue that the Swiss system attracts German tax evaders. Although the country has a withholding tax, it does not apply to borrowers based abroad.

Two years ago, the Organisationfor Economic Cooperation and Development singled out Switzerland and Luxembourg in a report on "harmful tax practices". In June this year, the country was once again cited in an OECD analysis of 47 predatory tax schemes.

Both governments agreed an OECD statement on banking secrecy which stressed that this principle should never bar providing information to foreign tax authorities investigating a named individual. "The EU would probably not be able to use this statement since it never permitted 'fishing expeditions' by tax authorities," said an OECD official.

Switzerland's federal council recently stated that although it is prepared to expand the country's existing system of withholding taxes, it will never accept mandatory reporting of income to third-party states.

"Switzerland will need to think about this very carefully, because one day it will want to be part of the EU," warned Eichel.

German Finance Minister Hans Eichel is threatening retaliation against Switzerland unless the EU's third-largest trading partner agrees to adopt a version of the Union's new common savings tax regime.