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The Negotiations of a Tax Agreement between Switzerland and Germany

Misha Nagelmackers-Voinov

III. Reaching an International Agreement – The Negotiations: Level I

Texte intégral

1The main objective is two folded: ease the pressure mounting against Switzerland to adopt automatic exchange of information and resolve taxation of foreign assets in Swiss banks, while obtaining access to the German financial market. Considering Switzerland’s position, a credible, proactive and creative strategy became necessary. Credibility could be reached by seeking cooperation and agreement with powerful partners – such as Germany and the United Kingdom. Proactivity could be reached by making concrete proposals and being politically committed to a successful negotiation process – this was reached by placing the issue domestically at the highest level and by creating the SIF under the supervision of Michael Ambühl. Creativity could be reached by building on existing tax schemes, allowing technical teams to work out together and testing new types of cooperation and calculations, in a mutually trusting spirit; in this respect, support from the German and Swiss Ministers of finance to the process was critical to find new routes and empower experts with finding a mutually agreeable groundbreaking solution.

  • 118 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Associati (...)

2The negotiation strategy supported the idea of finding a long-term solution to the domestic challenges of Switzerland’s counterparties, and not to pull out an amount to buy a short-term solution. In negotiating a solution – avoiding costly and lengthy investigations, or even embarrassing purchasing of stolen data – Switzerland was committed to finding a lasting and fair solution, using objective and agreed criteria (country of residence, total assets, history and income from the assets…). “The tax agreements offered a simple and sound solution to lots of challenges.”118

  • 119 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

3One of the success factors for the Swiss delegation was the inefficiency of automatic exchange of information. Although often referred to in political jousting as a “cure-all,” its inefficiency could be illustrated by the following anecdote: “a former Finance Minister of an EU-Member State once mentioned that amongst the hundred thousands [sic] information he received from other countries based on the automatic exchange of information, only a few hundred offered enough evidence to be used to levy taxes.”119 Switzerland’s proposal of a tax cooperation scheme based on taxation at source offered an opportunity to increase income for governments without lengthy and costly cross border procedures.

  • 120 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Associati (...)

4In early 2010, Swiss diplomats had strongly suggested to adopt automatic exchange of information in exchange for increased market access. A working group was set up with bankers, insurance companies and funds to float the idea. At the time, only the big Swiss banks clearly appeared in favour of automatic exchange of information. “Switzerland could not accept to make concessions, largely inspired by an economic warfare, without asking for counterparts – Switzerland is a very liberal country, and any company or foreign bank can establish on its soil. But this must be evolve towards an equal treatment for Swiss companies interested in the UK or Germany markets. Such is not the case today and Swiss banks must comply with various discriminatory rules.”120

5Informal contacts took taken place between Swiss State Secretary Michael Ambühl and Hans Bernhard Beus, State Secretary at the German Federal Ministry of Finance, who had also been appointed in early 2010.

6Formal negotiations on a possible tax agreement with Germany kicked off in early 2011. It is most certainly thanks to privileged contacts between the German Minister of Finance Wolgang Schäuble and Swiss Finance Minister Hans-Rudolf Merz that talks started. It was during a bilateral phone conversation that both Finance Ministers agreed their countries needed to move on this front. And from then on, technical and political teams got to work.

1. Informal Contacts and Talks

7From March 10, 2010 to the signing of a joint declaration on the initiation of negotiations concerning tax issues between Switzerland and Germany, October 27, 2010.

8There was little internal debate in Switzerland and Germany in early 2010 regarding a possible tax agreement. The media did not mention the topic and no particular political interventions was raised either. In Switzerland, the talks were announced and most of the professional debate concentrated on alternatives to banking secrecy such as trusts. Public debate and media attention was still very much focused on the consequences of Switzerland lifting its reserves on art 26 OECD. In addition, the country was still very busy with the UBS crisis as well as the future of its relations with the EU. Later, in 2011, Federal elections, the EU debt crisis and the ASIN popular referendum on international treaties, were the main topics in the media. All parties let the informal process kick off, standing prepared for when more details were published.

  • 121 Markus Dettmer & Barbara Schmid, “‘Loopholes as Big as a Barn Door:’ German Tax Treaty With Switzer (...)

9The situation in Germany was quite different. From the start, the Ministry of Finance had decided that no other Bundes Ministry would be involved in the talks, most probably due to the debate that had arisen over the past two years concerning fairness in taxes in this age of digital data records that can be copied in an instant and turned into commodities…121

10Contacts with Berlin were initiated on March 10, 2010. Michael Ambühl met his German counterpart as well as representatives of Germany’s Federal Ministry of Finance and Federal Chancellery. The meeting in Berlin was to serve as a platform for a general exchange of ideas on current financial and tax policy issues.

11A number of other meetings took place, duly reported in the SIF website: on March 25, 2010 Michael Ambühl made working visits to Vienna and Vaduz; on 8 April 2010, he met in Paris with France's Budget Minister, François Baroin; on 12 April 2010, he met the UK Permanent Secretary for Tax, David Hartnett, and the Second Permanent Secretary of the International and Finance Directorate, HM Treasury, Tom Scholar; on July 2, 2010, he received the visit of the European Commission Director General for Taxation, Walter Deeffaa for talks on the current status of tax policy and financial policy business; on July 7, 2010, he conducted a working visit to the Belgian EU presidency in Brussels; on September 16, 2010 he met Vittorio Grilli, Director General of the Treasury in the Italian Ministry of Economy and Finance.

12Beyond SIF’s activities, contacts also took place between national banking associations. The SBA, as part of its mandate, conducted informal contacts, briefings, media contacts. As a trade association, the SBA would not take part in sovereign tax debates with other countries, even though it would in the end implement the contents of the international agreement (in this case, managing a withholding tax). Nevertheless, meetings with interest groups, trade associations, political groups, were set up to increase knowledge of the industry.

  • 122 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

13From a tactical point of view, the number of visits and meetings had to be right. If Switzerland was too active, it could mean that the country was desperate for a deal or that the deal was flawed. “While negotiations took place at the government level, there were meetings in Germany and the UK at the trade associations level as well.”122

14The result of all the SIF working visits was the signing of two declarations on the initiation of negotiations:

  • On October 25, 2010 Federal Councilor Hans-Rudolf Merz and Chancellor of the Exchequer, George Osborne, discussed cooperation on financial and tax matters in London. A declaration on the initiation of negotiations on tax issues between Switzerland and the United Kingdom was signed thereafter.

  • On October 27, 2010 Federal Councilor Hans-Rudolf Merz and German Finance Minister Wolfgang Schäuble signed a joint declaration on the initiation of negotiations concerning tax issues between Switzerland and Germany. In addition, both ministers signed the revised DTA in accordance with the OECD standard during this meeting in Bern. By signing, Mr. Merz and Mr. Schäuble reaffirmed the willingness of both countries to intensify cooperation in financial and tax matters and strengthen long-term legal security.

2. Formal Negotiations

15From January 17, 2011 to July 4, 2011.

2.1 First Round – January 17, 2011, Bern

16The first formal meeting regarding tax agreement with Germany took place in Bern. Germany’s objective was an agreement entering into force within a year. Negotiations over simple double tax agreements (DTAs) usually took two years; so, either Germany entered the talks in a hurry, hoping to reach a timely agreement for domestic reasons (general elections were coming up) or Germany was trying to put Switzerland under pressure, making sure their counterparts understood the window of opportunity was small and there was no time for the usual lengthy Swiss negotiations technique, stretched over time.

  • 123 Ibid.

17From the beginning, the German delegation made it clear that the prospective tax agreement was a top priority in bilateral relations with Switzerland. It could not be postponed and was high on the domestic political agenda. “It was also agreed that both parties would refrain from communicating or commenting the talks for a period of three months.”123 And from the German point of view, the aim of the agreement was clearly stated as changing the behavior of tax evaders and facilitating voluntary disclosure of assets.

  • 124 Claude Baumann, “Deutsche Banken buhlen um Schweizer Schwarzgeld,” Handelszeitung, 23.5.2012 (trans (...)
  • 125 Ibid.
  • 126 Ibid.

18The Swiss immediately brought up the question of reciprocity. Considering the 316-kilometer border between Switzerland and the South of Germany as well as the commercial exchanges between both countries, the odds were high that German banks in the region sheltered undeclared Swiss assets. This Swiss “Schwartzgeld” in Germany had been estimated at least half a billion euros. In May 2012, Zurich-based weekly newspaper Handelszeitung (part of the Axel Springer Group) published an article124 revealing banking practices in Germany. The journalist posed as a 50-year-old Swiss entrepreneur wishing to open a bank account in Germany, for income he had received in Germany. He wanted to benefit from lower bank charges in Germany and also transfer CHF 100'000 from an investment fund in the Caribbean; the funds were openly disclosed as not declared in Switzerland. Apparently, neither Commerzbank, Hypo Vereinsbank, Sparkasse nor Volksbank reacted on the issue of undeclared assets. Even the BW Bank, a subsidiary of state-owned Landesbank Baden-Wuerttemberg expressed no reservations to sheltering undeclared assets. And according to BW staff, neither the German tax authorities nor the Swiss authorities would be interested in these assets. Furthermore, “it is not the role of the bank to enquire about the tax situation of the customer.” 125 When confronted by the journalist, the bank declared “German law is in line with European guidelines and provides for minimum standards to be followed when an account is opened. This includes the proper identification of the contracting party and the reporting requirements under the Money Laundering Act for certain acts of tax evasion,” said a spokesman of Volksbank.126 Other German banks issued similar statements.

19The quantity of information requested by the BMF Federal Ministry of Finance regarding possible tax evaders was a critical point on the agenda of the meeting on January 17, 2011; so were the guarantee payment and process to implement the agreement. From the start, the parties discussed to define if the payment was a guarantee (for future payments; as defended by Switzerland) or an upfront payment (compensation and possible responsibility of banks; as defined by Germany). The question of the responsibility of Swiss bank employees was also brought up.

20During the consultation process and preparations for the negotiation of tax cooperation agreement on non-declared assets, Swiss bankers had agreed to support the principle of such a tax agreement, provided market access was granted. The question of market access had been and still remains a longstanding open question. Back in September 2003, the German Federal Institute for Financial Authority (BaFin) published a note that dramatically restricted cross-border trade in services between Germany and other countries. After several contacts with the FINMA, the BaFin acknowledged in July 2004 that Swiss banks were subject to regulation and monitoring equivalent to the German institutions. However, the new version of the BaFin note issued in April 2005 did not change much and the access to German financial market remained restricted in a discriminatory manner. The issue of access to the German market remained a contentious issue for Switzerland; reciprocity, although enshrined in a number of agreements, is still not fully applied in Germany.

21Apparently, from the start of the negotiations on tax cooperation with Germany, the question of market access was negotiated separately from the tax issue. It was taken out of the main negotiation package and delegated to a different team of negotiators. From then on, little or no progress was ever achieved and market access is still far from granted.

22During the first meeting, the plenum agreed on how to inform the EU and the OECD Secretary General. In addition, although no formal information was disseminated, the EU Ambassador to Bern as well as Austria and Luxembourg, followed these negotiations. It was decided that only the close staff of the BMF Ministry of Finance would be informed of talks on a possible tax agreement, to ensure progress and leave political debate for later; with hindsight, this was probably a tactical mistake as getting other Bundes Ministries on board earlier in the process might have contributed to ensuring some form of buy-in or anticipate rising domestic debates.

23Swiss negotiators overcome general misconceptions regarding Swiss banks. After the disappointment of income received from the taxation on savings, Germany intended to clearly discuss, set rules and guidelines as well as ensure enforcement. The rate of taxation of German assets in Switzerland had to be agreed upon. The starting point could be the nominal and effective rates of the 2004 German tax amnesty, and an estimate of German funds in Switzerland could be assessed, defining asset allocation and history. In addition, the tax rate could be adapted to the type of investment. This information was consolidated by the FDF, with the support of the Swiss Financial Center. Furthermore, as the UK did not trust the figures they received, an independent auditor was commissioned. As it turns out, figures from the Swiss government and from the auditing company were sensibly the same. But these figures were only communicated to the UK and German teams at the end of the round of negotiations, in order not to influence debates. According to management consultants Booz & Company, British and German assets in Switzerland represent a total of CHF 270 billion of which 60% would be undeclared.

24During the first official meeting on January 17, 2011, the question of enlarged assistance was brought up as well as the very sensitive question of stolen data. The case of German tax authorities acquiring stolen tax data relating to German accounts in Swiss banks, was back in the news in January 2010. Confidential data of 1,500 account holders had been sold to the German authorities for 2.5 million euros. In September 2010, the case led to the arrest of a suspect, who hanged himself in prison. In early 2011, another suspect was released after being in custody. But then, Switzerland decided to issue arrest warrants in March 2012 against three German tax officials who had bought stolen data. The Swiss Attorney General, Michael Lauber, declared that the collusion of the arrest warrants and the ratification of the tax agreements was “a mere coincidence.” In fact, Switzerland had filed for legal assistance with Germany nearly three years earlier, but to no prevail. A number of elements in the case indicated that the German government had requested the spying of Credit Suisse, an accusation that the German authorities denied. Nevertheless Switzerland’s move to issue arrest warrants was considered as an aggression by Germany who requested that Switzerland stop procedures against all German spies, implying there might be a number of other enquiries still pending.

25The mention of “automatic exchange of information” had to be included in the agreement – it was finally mentioned in the preamble, the declaration and the body of the text. This mention was important to Germany who hoped to force Luxembourg and Austria out of their trenches.

26Wrapping up this first round of negotiations, a brief press release stated that negotiations had started between Switzerland and Germany, without giving any additional information on substance or deadlines.

  • 127 Ulrika Lomas, “Swiss-German Relations Reach Turning Point”,, Brussels, 28 January 2011

27At the end of January 2011, German Chancellor Angela Merkel and Swiss President Micheline Calmy-Rey met in Berlin. The negotiation teams had agreed that the head of states would make “positive noises” about their countries, particularly on tax issues and bilateral relations. This was a tangible sign for all interested parties not directly part to the negotiations, that both parties anticipated a positive outcome to their talks. The German Chancellor and Swiss President mentioned that negotiations recently initiated were about a final withholding tax and better market access for Swiss financial services. Speaking at the joint press conference that followed their discussions, 127 Calmy-Rey stated that: “With the withholding tax model we have a constructive approach that respects the interests of both sides”, adding that: “Both sides now want to engage in speedy, thorough and solution-oriented negotiations.” Merkel alluded to the fact that significant progress has been made in the area of bilateral tax matters.

28The signing of the revisions protocol to the double taxation agreement (DTA) in place between the two countries in October 2010 surprised many observers and was a very positive message, Merkel stressed, noting that both finance ministries would now begin work to resolve outstanding issues and ratify the DTA protocol. Merkel pointed out Switzerland was very active in the work of the Financial Stability Board, and therefore contributed positively to regulate financial markets. She added that there was also a broad consensus on regulation of the Swiss financial center. Both countries supported the Basel III agreement as an important milestone in the question of how future international financial crises could be prevented and what could be done.

2.2 Second Round – 11 February 2011, Berlin

29The second round of official negotiations took place on 11 February 2011, in Berlin.

  • 128 Bruno Spinner quoted in L’Hebdo, Les diplomates savent-ils encore défendre la Suisse?”, 6.11.1997 (...)
  • 129 Les diplomates savent-ils encore défendre la Suisse?” L’Hebdo,6.11.1997 (translation MNA).

30A first draft of the agreement had been prepared by Switzerland. The ultimate in international negotiations, "is to convince the other that it was him who found the idea that you have suggested, said Ambassador Bruno Spinner,128 head of the Office of integration from 1992-1999 and predecessor to Michael Ambühl. There is a solution as long as the other does not lose face. “Therefore, when we win a point,” nothing must be said. A good negotiator is necessarily “modest.”129 When a party to a negotiation considers a Swiss draft proposal as its own – after it is presented informally – it will probably soon after emerge, signed and presented to the Swiss negotiators as a basis for discussion.

31A number of phone calls took place between the first and second rounds of negotiation; heads of delegations floated and tested ideas. The agenda of the meeting was to discuss all points mentioned in the draft proposal and about being creative. But beyond creativity, one had to be pragmatic and compare existing rules and norms.

32The meeting on 11 February took place from 9am to 5pm, like most other meetings. Discussions focused on the “intermediary period” between the time the agreement was signed, ratified and finally the moment it came into force. The main worry was regarding customers who could move their assets to foreign countries and escape taxation before the entering into force of the agreement.

33At this point, it was decided that a technical subgroup should discuss further issues such as rates and practicalities. SIF took part in these working subgroups, under the lead of the Swiss Federal Tax Administration (FTA). SIF was in charge of administering taxation on savings and their know-how could be useful in replicating models and processes. The German participants to the technical subgroups were also tax specialists.

2.3 Third Round – March 2, 2011, Bern

34During this third round of negotiations, the question of market access was raised as a major and concrete issue in pursuing negotiations. However, the German delegates confirmed that, although they understood the situation, they were not ready to concede anything more. This was a setback to the process, but still, discussions continued. As part of the creative ideas that were floated on that occasion, Michael Ambühl suggested that Swiss banks could act as the gateway to German taxation for all German non-declared foreign assets worldwide, not only German assets in Switzerland. The idea of having the Swiss Financial Center become the tax collector of the world was also discussed with the UK – who thought the idea quite attractive – but in the end, the idea did not fly with Germany either.

2.4 Fourth Round – March 25, 2011, Berlin

35The meeting was very much about the rates of taxation and defining a formula: should it be a flat rate or a range with a minimum and a maximum? The main objective was to make sure a client did not escape to another financial center, but likewise the taxation rate could not be too attractive either. Mainly for Swiss and German domestic policy reasons, the tax agreement could not appear as a tax amnesty, as past amnesty programs in Germany had been moderately successful. The term “amnesty” remained a politically loaded concept that would certainly be raised during the ratification process.

36From the start, it was clear to all that the agreements would have to appear fair and relate to disclosure programs. Strategies needed to be modulated not only to influence constituents, but also to take account of the opposite party’s domestic constraints.

  • 130 The EU’s reaction to this new option is presented under “Supranational reactions” on page 60.

37During the meeting, the German delegates mentioned that there had been contacts with representatives from the EU Secretary General’s office. Two tax models were currently in the making: the German model that contemplated an agreement without withholding tax and the British model that included a withholding tax. Until that very moment, only one option had ever been considered at the EU level – automatic exchange of information. And from then on, two additional options were available.130

38The meeting on March 25 also gave the opportunity to consider the next political steps: were ministerial meetings necessary to finalize certain aspects of the agreements? What were the next institutional steps towards ratification in Switzerland and Germany? At that point, the initial deadline of June 2011 started to appear unrealistic.

2.5 Fifth Round – April 7, 2011

39Number crunchers met on April 7, 2011 to discuss rates and formulas. Meetings with the British delegation (and particularly with Dave Hartnett) were more creative as both parties were committed to find new models and mechanisms, for instance regarding the intermediate situation. These meetings paved the way to the solutions that were then finalized in the German final tax agreement. During negotiations, Michael Ambühl was transparent, providing updates to the German delegation on the progress of discussions with the UK delegation, and vice versa. The main advantage of playing an open game, particularly when there is no guaranteed outcome, is that it allows building and consolidating trust over time. Moreover, it cannot be excluded that British and German delegations, or Finance Ministries, were also in contact at one point or another, exchanging notes and impressions about their own work with the Swiss delegation.

2.6 Sixth Round – April 8, 2011, Berlin

40German and Swiss delegations met on the following day in Berlin to go through and agree on the calculation methodology. The question of the upfront or guarantee payment remained opened. Delegations began drafting a joint declaration and protocol to be part of the final agreement, particularly regarding stolen data and the formal commitment to stop acquiring such material.

2.7 Seventh Round – May 9, 2011, Bern

41On May 9, 2011, delegations met in Bern and changed the calculation formula, following discussions that took place with the British delegation. The meeting got tense when debating the question of an upfront or guarantee payment. Germany needed to be convinced the guarantee payment was not a trick that the Swiss bankers were trying to pull. Germany wanted an upfront payment, paid in full by the banks and reimbursed by clients over time (first half of the amount and then by tranches).

42The question of “leavers” (i.e. clients leaving Switzerland before the entering in force of the agreement) was brought up and was making the Swiss delegation increasingly uncomfortable. Then, further important aspects were also debated: should the information transmitted to the German authorities be total sums, provide all transfer destinations or only the 10 most important ones? Transferring information regarding other Financial Centers also presented the risk of creating delicate situations to handle in the future, from a banking and a diplomatic point of view. There were also lengthy discussions regarding the “Funktionskontrolle:” should control take place as part of random checks, or rather line by line…?

43The Swiss delegation challenged the principle of requesting information on all German accounts in Switzerland, arguing that information should only relate to situations where there was a strong suspicion. In cases where there was not much evidence, only a limited number of requests would be processed. Switzerland believed in protecting ordinary citizens who were not bringing new assets to Switzerland. It would assist in identifying people who used (or abused?) the Swiss banking system to hide undeclared assets through complex tax evasion and fraud schemes. Self-established professionals such as doctors, engineers, lawyers, architects, accountants or technology experts were therefore considered the most at risk of scrutiny.

44The question of possible fees to cover the cost of implementing the tax agreements was also raised: banks would not be able to recover their expenses but the Federal Tax Authority would be able to deduct a fee to cover its costs.

45The duration of the agreement was critical. When should it be terminated – after a long time, a short time? How could it be terminated – unilaterally, multilaterally? Negotiators also considered that if the concept of duration was integrated in the agreement, this could mean that parties intended to terminate it at the time they entered it. On the other hand, no mention of duration would also seem strange. One thing was certain: Switzerland pleaded for a long duration.

2.8 Eighth Round – May 19 and 20, 2011 and June 2, 2011, Bern

46On May 19 and 20, 2011, drafting teams met to finalize the texts.

47The delegations met again in Bern on June 2, 2011. Most of the meeting was about the concept of “anti-abuse clause,” a taxation concept that remains vague. “It is understandable that the tax authorities are watching closely how companies carry out their transactions to make sure only residents of the contracting states have access to treaty benefits and they do not abuse them.”131 The UK delegation insisted and got a clear definition. The German delegation went along with it.

48The topic of bank liability as well as bank employees’ liability was finalized. There were many negative reactions regarding this agreement as it sets a precedent with consequences that were not fully appreciated.

49The duration of the agreement was agreed for a period of 2 years. But market access, once again, was not finalized and the question of authorizing BaFin inspectors in Switzerland was not covered.

2.9 Ninth Round – June 7 and 8, 2011

50On June 7 and 8, 2011, small groups met but no particular breakthrough took place and three topics remained open: the issue of protecting “decent clients,” the number of requests and the upfront payment. A bilateral phone call between German and Swiss State Secretaries on June 20, 2011 did not bring a breakthrough either.

2.10 Tenth Round – end June 2011, Berlin

51At the end of June 2011, it was agreed that “decent clients” would be protected.

2.11 Eleventh Round – July 4, 2011

52Switzerland agreed that it could live with the concept of upfront payment. The question of the number of authorized requests remained open. Federal Councilor Eveline Widmer-Schlumpf, Head of the Finance Department, and Bundes Finance Minister Wolfgang Schäuble would finalize the numbers.

3. Signature of an Agreement – First Reactions

3.1 Signature by Negotiators Ambühl and Beus – August 10, 2011, Bern

53German and Swiss negotiators concluded the negotiations on outstanding tax issues. Under the agreement, persons resident in Germany could retrospectively regularize existing assets in Switzerland either by making a one-off tax payment or by disclosing their accounts. Future investment income and capital gains of German bank clients in Switzerland were to be subject to a final withholding tax that Switzerland would transfer to the German authorities. In addition, mutual market access for financial services would be improved – but not totally granted. The agreement was expected to be signed by both governments in the following weeks and enter into force at the start of 2013.

54The signed agreement was presented to the Federal Council with the original negotiation mandate, to get the “all clear” and allow the formal signature in Berlin and London by the Finance Ministers.

3.2 Signature by Finance Ministers Widmer-Schlumpf and Schaüble – September 21, 2011, Berlin

  • 132

55The tax agreement was signed on 21 September 2011 in Berlin, by Germany’s Finance Minister, Wolfgang Schäuble and by Switzerland’s Finance Minister, Eveline Widmer-Schlumpf. The agreement was officially described as balancing the requirement for Swiss bank privacy with the legitimate claims of the German tax authorities. They also claimed that mutual market access for financial services would be improved. Roughly, the negotiated tax agreement allowed regularizing undeclared assets in Switzerland through a flat tax remittance as well as a withholding tax on future income on capital. (see Annex 2 for references to the following related documents:132 Accord entre la Confédération suisse et la République fédérale d’Allemagne concernant la coopération en matière de fiscalité et de marchés financiers, 21.9.2011; Protocole du 5.4.2012 portant modification sur l’accord entre la Confédération suisse et la République fédérale d’Allemagne concernant la coopération en matière de fiscalité et des marchés financiers signé le 21.9.2011; Mémorandum sur les aspects de procédure relatif aux activités entre les deux Etats dans le secteur financiers; Mémorandum sur les aspects de procédure liés à l’application de l’accord sur la fiscalité de l’épargne entre la Suisse et l’UE; as well as Annex 3 for the full text of the Draft Federal Law on international taxation at source Projet de Loi fédérale sur l'imposition internationale à la source).

  • 133 Jean-Daniel Delley, “Le culot de Micheline Calmy-Rey,” Domaine Public, 14.11.2011.

56In Fall 2011, at the Foreign Affairs Committee of the European Parliament, Foreign Affairs Minister Micheline Calmy-Rey presented the positive role of Switzerland, through the International Monetary Fund and the National Bank, participating to the effort to stabilize the European economy. She added that this role could grow with Rubik. The money raised would relieve States in financial difficulty. As a result, Switzerland would not appear as part of the problem, but as part of the solution to the crisis.133

3.3 International Reactions: Luxembourg, France, Italy, Greece…

57In October 2011, the Luxembourg Bankers’ Association (ABBL) announced it intended to pressure its national government to negotiate tax agreements comparable to those Switzerland had concluded with Germany and the United Kingdom. Luxembourg’s financial center hoped in this way to short-circuit the European Commission, which was clamoring for the abolition of banking secrecy in the EU.

  • 134 Daniele Mariani, “Rubik sème le doute aussi en Suisse,” SwissInfo, 13.1.2012.

58Mid-January 2012, power games were at their height: the agreement was strongly criticized in Germany, Brussels declared the agreement invalid, France did not wish to enter exploratory discussions. The only positive message came from Italy where Mario Monti declared that the possibility of an agreement with Switzerland should be looked into. At the time Michel Dérobert, General Secretary of the Swiss Private Bankers Association declared “these agreements are in line with European law. It is now up to the British and German negotiators to ensure that such is the case. I believe that the German government has the ways and means to ensure the agreement does not fail and avoid the embarrassment of signing an agreement in good faith and then get called back to order by Brussels.”134

  • 135 Willy Boder, “L’Espagne s’intéresse au modèle suisse ‘Rubik’,” Le Temps, 5.6.2012.

59On April 13, 2012, Switzerland announced it had signed a tax agreement with Austria. It would join the ratification process of the agreements with Germany and the United Kingdom. The Swiss government is also said to have opened talks with Greece, Spain, Italy as well as “a group of approximately 5 to 10 countries that were interested in entering discussions with Switzerland.”135

3.4 Supranational Reactions and How Bad Things Can Get when Treading on the EC’s Perceived “Prerogatives”

  • 136 Alex Barker, Writ looms over Swiss tax deal with UK,” Financial Times, 27.11.2011.

60At the end of November 2011, the European Commission had threatened to take Germany and United Kingdom to court if the Swiss treaties went into force. The tax agreements had clearly stricken a blow at EU’s strategy to pressure Switzerland – as well as Luxembourg and Austria - to adopt automatic exchange of information and assist tax evasion investigations. According to the Financial Times,136 European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, Algirdas Semeta declared "if we are unable to sort out these problems, then it is clear that as guardians of the (European) treaty we have to proceed with the instruments that are in our hands." George Osborne and Wolfgang Schäuble were therefore told to renegotiate the terms of their agreements with Switzerland, removing parts overlapping EU law.

  • 137 Thomas Cottier, cited in, “Rubik tax treaties face serious hurdle,” SwissInfo, 25.11.2011.

61Taking the United Kingdom and Germany to the European Court of Justice (ECJ) was not an empty threat as the EU had already settled similar disputes – for instance with the US – regarding airspace treaties and securing routes through European airspace.137 In 2002, the ECJ ruled that airlines had to negotiate with the EU as a whole rather than individual member states. It was thought that in the case of bilateral tax agreements with Germany and United Kingdom, the ECJ might go the same way, despite the fact that the Commission had clearly confirmed that individual nations had the authority to settle bilateral tax matters independently.

3.5 The March 5, 2012 Letter from Algirdas Semeta to the Danish EU Presidency

62In a letter dated March 5, 2012, Algirdas Semeta, acknowledged that EU member states were free to sign bilateral agreements with Switzerland, on condition that they remained within certain legal limits. Regarding future direct taxes, areas already covered by EU legislation on savings-generated income taxes had been excluded. Semeta warned the 27 Member States that they “should refrain from negotiating, initiating or ratifying agreements with Switzerland” if some of the treaties’ provisions interfered with EU legislation. It is interesting to note that this letter was not addressed or copied to Switzerland.

  • 138 Algirdas Semeta, cited in “Switzerland puzzled by Brussels warning,” SwissInfo, 6.3.2012.

63Six months after the threats to take United Kingdom and Germany to the ECJ, the EU Tax Commissioner declared he had “very constructive discussions” with Berlin and London to ensure that they “modified” their agreements in view to make them EU-compatible. “I am confident that a satisfactory solution will be found,”138 noting that his objective was to prevent infringement procedures.

3.6 Giving in Rather than Renegotiating

64On April 6, 2012, Algirdas Semeta confirmed that he accepted the revised bilateral tax agreements between Germany and Switzerland and between the U.K. and Switzerland.

65Switzerland had been accused of violating a European legislation that did not apply to it – as it is not part of the EU. And the European Commission argued about non-conformity of the agreement in respect to the EU Savings Taxation with London and Berlin but never brought up the issue with Switzerland directly, despite the fact that the taxation of savings remains an agreement between Switzerland and the EU – and not between Switzerland and the UK or Germany.

  • 139 Ibid.

66“The EC would have needed a mandate to negotiate directly with Switzerland. In fact, even if such a model agreement had been signed with Brussels, bilateral agreements had to be negotiated with every country to answer tax idiosyncrasies of every single country.”139

  • 140 Marie-Caroline, Arreto, L’utilisation de données d’origine illicite dans la lutte contre la fraude (...)

67The signed agreements had the particularity of restricting the jurisdiction of the European Union, while it was fighting to become the only entity entitled to discuss agreements and harmonize taxes in Europe. In this context, the necessary role of cooperation between States can only be emphasized, so that agreements are legally enforced.140

68Just before Easter 2012, Switzerland approved a final amendment of the tax agreement. To put an end to further demands and avoid entering new rounds of negotiations, Finance Minister Evelyne Widmer-Sclumpf argued that from this point on, status quo would be the best outcome for Switzerland.


118 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Association (SBA), meeting on 13.1.2012.

119 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

120 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Association (SBA), meeting on 13.1.2012.

121 Markus Dettmer & Barbara Schmid, “‘Loopholes as Big as a Barn Door:’ German Tax Treaty With Switzerland Could Crumble”, 25.7. 2012.

122 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

123 Ibid.

124 Claude Baumann, “Deutsche Banken buhlen um Schweizer Schwarzgeld,” Handelszeitung, 23.5.2012 (translation MNA).

125 Ibid.

126 Ibid.

127 Ulrika Lomas, “Swiss-German Relations Reach Turning Point”,, Brussels, 28 January 2011.

128 Bruno Spinner quoted in L’Hebdo, Les diplomates savent-ils encore défendre la Suisse?”, 6.11.1997 (translation MNA).

129 Les diplomates savent-ils encore défendre la Suisse?” L’Hebdo,6.11.1997 (translation MNA).

130 The EU’s reaction to this new option is presented under “Supranational reactions” on page 60.

131 PWC, Anti-Abuse Rules on International Taxation,”


133 Jean-Daniel Delley, “Le culot de Micheline Calmy-Rey,” Domaine Public, 14.11.2011.

134 Daniele Mariani, “Rubik sème le doute aussi en Suisse,” SwissInfo, 13.1.2012.

135 Willy Boder, “L’Espagne s’intéresse au modèle suisse ‘Rubik’,” Le Temps, 5.6.2012.

136 Alex Barker, Writ looms over Swiss tax deal with UK,” Financial Times, 27.11.2011.

137 Thomas Cottier, cited in, “Rubik tax treaties face serious hurdle,” SwissInfo, 25.11.2011.

138 Algirdas Semeta, cited in “Switzerland puzzled by Brussels warning,” SwissInfo, 6.3.2012.

139 Ibid.

140 Marie-Caroline, Arreto, L’utilisation de données d’origine illicite dans la lutte contre la fraude fiscale – Une tolérance “proportionnelle” du juge constitutionnel allemand, Jurisdoctoria n° 7, 2011, p. 145.


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