Criticism does not take reality into account. I consider the conclusion of negotiations between the EU and Switzerland on savings taxation to be generally positive (see our bulletin of 20 May, page 9, in particular). Those expressing reticence mainly have three criticisms to make: a) Switzerland is able to keep, and will keep, the practice of bank secrecy; b) Swiss banks could easily not apply withholding on interests on Union citizens' deposits by attributing these deposits to third country citizens; c) by accepting the principle of withholding, the EU has renounced the goal of exchanging information between tax administrations.
Criticism is faulty in that it does not take reality into account. The alternative was not between a theoretically ideal agreement and a partially unsatisfactory compromise but between this compromise and nothing at all. And the "nothing at all" would not simply have entailed absence of agreement with Switzerland but also the disappearance of the agreement between Member States, very important for the EU's fiscal, economic and social policy and the result of difficult negotiations that had lasted several years. It has perhaps been forgotten but the affair dates back to the White Paper of Jacques Delors, who had highlighted the fact that, in practice, every Member State had become a "tax haven" for other Member States' savings. When complete free movement of capital took effect, each government - in order to attract capital from its neighbours - had decided to exempt the interest of non-resident savings from taxation. Having thus lost the corresponding receipts and not being able to accept reduction on tax revenue, they had gradually increased income tax (which is not mobile like capital). The result was a socially unfair and economically damaging imbalance between the various categories of taxation. Mario Monti, when he was European Commission for the internal market and taxation, had drawn Finance Ministers' attention to this anomaly, and had launched negotiation on a European savings tax regime. After several years of difficult discussion, the compromise reached retains the final goal of information exchange between the tax administrations on non-residents' deposits, but with the possibility for some Member States to apply the alternative formula of "withholding" on interests. This last formula is therefore not the result of negotiation with Switzerland but had already been accepted within the Union. The Community directive in this connection will take effect on 1 January next year on condition that, at the same time, a similar regime is introduced in Switzerland and in a number of tax havens, in order to prevent savers from quite simply changing their savings deposits from one Community bank to a third country bank, continuing to pay nothing on interests and thus causing capital to be drained out of the Union.
The three positive effects. Agreement with Switzerland was therefore indispensable. It is now easy to answer the three points of criticism mentioned above. On point a) (maintaining bank secrecy in Switzerland), the answer is simple: keeping bank secrecy had already been allowed within the Union and it would be illogical (and impossible) to demand its suppression elsewhere. On point b) (attribution of deposits to extra-Community citizens), it is the president of the Swiss Confederation, Joseph Dreiss, who answered by stressing that Swiss banks have undertaken to faithfully apply the regulations and that any irregularities will be prosecuted and penalised. On point c) (acceptance of the principle of withholding), the answer will be the same as for point a): withholding as an alternative solution to the exchange of information on the identity of savers had already been allowed within the EU.
In an ideal world, the result could be considered as partially unsatisfactory. In the world as it is, the result is positive from three points of view: 1. Better tax equity, between savings income and income from work. 2. Additional receipts for Member States because Switzerland will pay 75% of the proceeds of the tax to the Union. These receipts will not be negligible as the tax will gradually reach the rate (above all forecasts) of 35%. 3. The possibility, in time, of reducing taxation on income tax, in conformity with a trend taking place in several Member States albeit a difficult trend to apply at the present time.
The effectiveness of such measures will be assessed as they are applied.
It remains to be added that the agreement on savings tax has allowed the EU and Switzerland to get other significant agreements moving at the same time, concerning free movement of persons (Switzerland will abolish its existing restrictions by 30 April 2011 at the latest), Swiss entry into the Schengen Area, and judicial cooperation against fraud, smuggling and corruption.
(F.R.)