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How Will Swiss-German Tax Treaty Affect Banking?

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How Will The Swiss German Tax Treaty Affect Banking With Switzerland and Germany largely in agreement on the terms of their tax treaty, European banking experts begin envisioning what the new German-Swiss banking relationship will look like. Western nations have been exploring ways to stem domestic budget deficits by reclaiming lost tax revenue from foreign banks, specifically Swiss banks.

For centuries, the Swiss have provided a safe and anonymous banking option for the world's wealthy. That policy however, is coming to an end. Buckling to international pressure, the Swiss have agreed to tear down their banking walls.

Banking Secrecy

One of the main reasons foreign nationals cite for holding Swiss bank accounts is secrecy. For German citizens especially, personal privacy in their banking habits is non-existent. The Swiss however, have lifted the veil of secrecy and already signed almost a dozen tax treaty agreements with countries like France, the UK and the US. They are also currently in negotiations will at least eighteen other nations, including Germany.

With privacy rights for German depositors still being negotiated in the Swiss-German tax treaty, it appears the final result will appease both sides. For the Swiss' part, they will cooperate fully in any criminal investigations and will provide information to authorities as requested. Giving German citizens a reason to continue patronising the Swiss banks, they agreed to keep all account details private and anonymous unless specifically requested by authorities.

Taxes

Another negotiating point is what tax rate to charge German account holders for past and future tax obligations, as well as deciding what assets are taxable. Hoping to avoid the creation of any tax loopholes, officials are being meticulous in deciding what financial instruments qualify, such as non-bankable assets, insurance policies, etc. So far, Swiss authorities have proposed a withholding tax on German interest, dividends, capital gains and investment income.

Banking Landscape

With German citizens accounting for the largest block of foreign customers for the globally dominant Swiss banks, the industry feared a rush of account closures once they began negotiating with German authorities. In just the first six weeks following Germany's announcement that they were going after tax evaders using Swiss bank accounts, more than 10,000 Germans voluntarily came forward. Germans are the largest foreign depositors with an estimated 260 billion francs invested in Swiss accounts.

Analysts agree the future looks bright for German customers after a Swiss-German tax treaty. With the German emphasis on privacy more than tax rates, Switzerland's agreement not to voluntarily provide account details should be enough to keep a large portion of German money in Switzerland.

Going one step further, European banking experts suggest the new agreement might even result in a flood of new German customers to Swiss banks. Banking analyst Christopher Wheeler of Italy's Mediobanca, suggests factors in Switzerland's favor include political and economic security, a strong and stable currency, a highly diversified banking sector and well-trained bankers and regulation. The rise in value of the Swiss franc recently suggests money is already flowing its way.

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