Switzerland - EU: Bilateral Negotiations II on the Taxation of Savings Income

For the first time negotiations on the taxation of savings income between delegations of the European Union (EU) and Switzerland were conducted on the basis of a draft international treaty. Central to these discussions was the core Swiss proposal of a system of tax retention (paying agent tax) with automatic taxation of interest revenue in favour of the EU member states. Furthermore there were also discussions as to whether a higher rate of taxation would optimise the preventive effect with respect to the draft EU directive.

The third round of negotiations between the delegations of the EU (Chairman: Robert Verrue, Director General for Taxation and the Customs Union) and Switzerland (Chairman: Prof. Robert Waldburger, Delegate for International Taxation Conventions; Federal Tax Administration) on the taxation of savings income took place in Brussels on 31st October 2002. At the heart of these discussions conducted for the first time on the basis of an actual draft treaty was the system of tax retention (paying agent tax) put forward by Switzerland. This forms the core of the Swiss proposal to provide an equivalent solution to the EU's problem of taxing savings income. The system of tax retention guarantees appropriate taxation of interest payments to EU citizens in favour of the EU member states. This model, which works along the lines of a withholding tax, meets the concerns of the EU whereby an appropriate level of taxation of interest payments to EU citizens cannot be circumvented via a third country. The tax retention system renders the evasion of taxes on interest payments unattractive. During the negotiation the question was discussed whether the initial tax rate envisaged by the EU of 15% and later rising to 20% actually taps the full potential preventive effect of such taxes. It is well known that the principle proposed by Switzerland as an equivalent measure to the solution proposed by the EU in the scope of the planned directive on the taxation of savings income, was not only authorised by the EU as an optional measure for its own member states over an extended transitional period. In the EU this principle is in fact widely used as a means of assuring the taxation of dividends.

In addition Switzerland is willing to examine the possibility whether foreign bank clients could themselves choose between the tax retention system and the transmission of information to the tax authorities. Switzerland might even be able to agree to a revision clause relating to the procedures in the transitional period envisaged by the EU for its member states as long as this clause is not prejudicial in nature. Furthermore and in accordance with the currently valid EU-standards, Switzerland is prepared to provide administrative assistance upon request in cases of tax fraud in the framework of its double taxation conventions.

While remaining within the scope of its legal principles, Switzerland would thereby make an additional step to help the EU on an issue which has no direct relation to the taxation of savings income.

Switzerland is prepared to continue constructive negotiations in all ten dossiers currently pending with the EU. In Switzerland's view a swift conclusion of these negotiations is basically possible as long as a balanced overall result can be achieved which takes into account the interests of both negotiating partners. In Switzerland the possibility of an optional referendum exists for international conventions of this nature.

The negotiations will be continued, however, a date has not yet been set.

31 Oct 2002