Black Money in Swiss Banks - Learn From Germany?
YESTERDAY Germany and Switzerland entered into a tax agreement under which Germans can declare their concealed wealth in Switzerland and pay a tax. The Swiss banks have agreed to pay an advance of CHF 2 Billions (about 2.8 billion dollars) to Germany.
The agreement includes:
Final withholding tax for the future: Future investment income and capital gains should be directly covered by a final withholding tax. The single tax rate has been set at 26.375%. This is in line with the current flat-rate withholding tax in Germany. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.
In order to prevent new, undeclared funds from being deposited in Switzerland, it has been agreed that the German authorities can submit requests for information in the context of a safety mechanism that must state the name of the client, but not necessarily the name of the bank.
Back taxation: To retrospectively tax existing banking relationships in Switzerland, persons resident in Germany should be given one chance to make an anonymous lump-sum tax payment. The size of this tax burden will vary from between 19% to 34% of the assets in question, and will be determined based on the duration of the client relationship as well as the initial and final amount of the capital. Instead of such a payment, those affected should also have the possibility of disclosing their banking relationship in Switzerland to the German authorities.
Further elements: Switzerland and Germany have decided to facilitate mutual market access for financial institutions. In particular, the implementation of the exemption procedure for Swiss banks in Germany will be simplified, and the obligation to initiate client relationships via a local institution will be eliminated. Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved. The package also includes a solution for the problem of possible prosecution of bank employees.
The Swiss Bankers Associations says, “the bilateral treaty gives clients of banks in Switzerland who are taxable in Germany a path to tax compliance while maintaining their financial privacy; the agreement allows Switzerland as a financial centre to implement its forward strategy and focus in future on acquiring and managing taxed assets; Germany will receive direct access to the tax base it is due, both past and future.”
Will Germans rush to their tax offices to declare their illegal wealth in Swiss banks or will they simply shift funds to some other country? One view is that Switzerland's tax treaty with Germany may finish banking secrecy in Europe and prompt withdrawals as Swiss banks will no longer guarantee client confidentiality.
Can India follow suit? But why should an Indian invest his black money in Switzerland or any other foreign country, when there are plenty of opportunities in India? It seems some of our godmen are safer than Swiss banks!