* Germany, Switzerland pact seen as litmus test for Swiss
* Germany back at the negotiating table with Switzerland
* Automatic exchange information looms for Switzerland
By Katharina Bart and Sarah Marsh
ZURICH/BERLIN, March 23 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
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
"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
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,
While withholding tax deals represent an opportunity for
Switzerland to reposition itself as a haven for clean money, the
British and German pacts are expected to cost Swiss banks as
much as 47 billion francs in withdrawals by wealthy clients,
according to Booz & Company analysis.
Bankers say it stands to reason that if the United States,
with whom Switzerland is also locked in negotiations over
alleged American tax cheats with offshore accounts, is able to
prise thousands of sets of data out of Switzerland, other
countries will follow suit with demands.
Cracks on the Swiss side emerged recently when finance
minister Eveline Widmer-Schlumpf referred to a "Plan B" in the
German talks, without elaborating.
Smaller Swiss banks may weigh up alternatives
Raising the issue of automatically exchanging data, as is
common with the European Union bloc countries, was tantamount to
heresy in Switzerland until very recently.
Raiffeisen boss Pierin Vincenz caused a stir last month when
he broke ranks with fellow bankers to question whether an
automatic exchange of client data would ultimately be less
cumbersome than negotiating and implementing a host of deals.
"The exact costs aren't clear as long as long as
negotiations are ongoing, but a series of individual agreements
will translate into horrendous administrative and compliance
costs to the point of threatening the existence of some smaller
banks, which is why many of them have lost interest entirely in
the withholding tax idea," said Boris Zuercher, Zurich-based
chief economist for the pro-business think-tank Avenir Suisse.
Switzerland's banking lobby has estimated the industry-wide
costs for Swiss banks to levy the German and British tax at 500
million Swiss francs, a sum which would rise if Switzerland is
successful with its strategy of striking similar deals first
across Europe, then further afield.
The Swiss bourse SIX has already set up a "tax messenger"
platform based on securities trading, an effort to share the
burden of additional costs as a result of the tax levy.
Earlier this month, the European Union effectively backed
down on its resistance to the deals after their demands were
met. Switzerland agreed to impose a 35 percent tax on the
interest earned on interest income, far higher than the just
over 26 percent the German agreement calls for.
The difference is a sort of "premium for anonymity": the
taxpayer can ask for the difference to be reimbursed provided he
or she comes clean and declares offshore funds at home.
($1 = 0.9142 Swiss francs)
(Additional reporting by Matthias Sobolewski and Gernot Heller;
Editing by Alexander Smith)