Germany and Switzerland are rushing to revise a tax deal on offshore accounts by the end of March in an effort by Swiss officials to preserve the secrecy underpinning the country's $2 trillion banking industry. The pact is meant to form the cornerstone of Switzerland's efforts to maintain its long-held banking secrecy by taxing Swiss accounts and levying a punitive rate of interest for undeclared money.
However, opposition from German lawmakers still threatens to derail the agreement, which was originally reached in August but has since been roundly criticised by the centre-left Social Democrats for being far too lenient on tax dodgers. Bankers and politicians grudgingly agree in private that striking a deal boils down to money. Switzerland has already agreed to pay Germany 2 billion Swiss francs ($2.19 billion) upfront to settle past, undeclared funds held in Swiss banks. With the euro zone crisis still uncomfortably close, Germany wants to cement a deal in time for it to come into force by next year's budget.
A parallel British-Swiss deal signed earlier this week has spurred hopes that agreement is drawing near. German and Swiss negotiators met in Berlin at the weekend, and a person familiar with the Swiss side said Germany has returned to talks with a renewed will to seal them, although without backing down on demands for a higher rate of tax.
Still, the deal might still be torpedoed by centre-left lawmakers such as influential Social Democrat Peer Steinbrueck, who stirred up anti-Swiss sentiment in 2009 as part of a drive to root out tax dodging. Steinbrueck, who has been vocal against the withholding tax deal in the past, has tapped into a popular nerve with his views. Some 86,500 Germans have so far signed a petition against the deal, according to lobby group Campact.
Should the talks collapse, it could mark a turning point in Switzerland's defence of banking secrecy. With the Swiss and German governments struggling to salvage the pact, bankers and experts in Switzerland are increasingly talking about what previously had been unspeakable: opening Swiss bank account data to an automatic exchange of information.
"If Switzerland cannot persuade enough countries to agree to a withholding tax, pressure on banking secrecy won't let up. Let's wait a few months to see what the diplomatic negotiations have produced before evaluating whether there's a necessity to change strategies," KPMG consultant Joerg Walker told Reuters. A Swiss government spokesman said Switzerland is seeking a resolution to the talks by month's end, a key date if both governments wants to push agreements through parliament in time for them to come into force in January.
Switzerland is seeking an agreement which does not alter the original, core terms of the deal, the spokesman said. For Switzerland, the withholding tax represents what is now widely seen as an attempt to postpone having to exchange information automatically, as most European Union member states do. "I think in 20 years, we won't be able to avoid automatically exchanging information," outgoing UBS chairman Kaspar Villiger told a business and political audience in Zurich this week. As finance minister more than 10 years ago, Villiger backed a stiffer version of money-laundering regulation as a pre-emptive move against mounting pressure on banking secrecy, he said.