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Germany Denies Fresh Tax Disc Purchase

August 2011 - Tax & Private Client. Legal Developments by Hassans.

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Germany's finance ministry has recently denied reports that the country's investigating authorities have purchased a new tax data disc, containing the names of thousands of Germans alleged to have evaded taxes in Switzerland. Such revelations risk provoking a fresh row between the two countries, newly united over the issue.

Key details of the recently concluded landmark tax deal between Germany and Switzerland are hot off the press, and the agreement has by no means been sealed.

The new reports surfacing in Germany indicate that state prosecutors and tax investigators in several German states are currently preparing to initiate searches. But the finance ministry has categorically rejected the suggestions, insisting that the tax administrations of both the federal and state governments have not this year purchased a tax data disc relating to German clients of Swiss banks.

The decision to purchase information contained on previously 'stolen' tax data discs has proven highly lucrative for the German authorities, enabling tax investigators to track down suspected tax evaders and leading to a wave of voluntary disclosures throughout Germany from individuals fearing prosecution. Although the government's go-ahead has served to yield billions of euros in much-needed additional fiscal revenues for the state, the controversial decision nevertheless aroused fierce criticism from neighbouring Switzerland, sparking a bitter row.

Finally, however, following months of negotiations, and in a move to quash their longstanding tax disputes, the governments of Germany and Switzerland on August 10 concluded negotiations on tax issues and initialled a framework for the future taxation of funds deposited in Switzerland by German residents.

Under the terms of the agreement, persons resident in Germany can retrospectively legitimize their existing banking relationships 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 will be subject to a final withholding tax, and the proceeds of this will be transferred to the German authorities by Switzerland. In addition, mutual market access for financial services will be improved.

The text of the agreement, the Swiss government said, not only respects the protection of bank clients' privacy, but also ensures the implementation of legitimate tax claims. Both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income.

The agreement nevertheless requires approval by parliaments in both countries. In Germany, the deal must also meet with the approval of the federal states in the Bundesrat or upper house of parliament. In accordance with provisions contained in the agreement, the new regulations are due to enter into force at the start of 2013.

Social Democrat (SPD) led states have not as yet, however, given their blessing to the agreement with Switzerland. While alluding to the negotiated treaty as progress, Rheinland-Palatinate's Finance Minister Carsten Khl (SPD) nevertheless underlined the need to first carefully scrutinize the text before providing a conclusive assessment. Khl also stated that the issue of alleged tax evaders maintaining their anonymity remained highly problematic. There is also a need for clarity as regards whether or not German investigators would in future be able to purchase tax data from Switzerland, he concluded.

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