* Germans hold an estimated 150 bln Sfr in Swiss banks
* Germany forfeiting 2 bln Sfr upfront by rejecting tax pact
* Switzerland faces U.S. crackdown, OECD implementation
* UBS puts European withdrawals up to 30 bln Sfr, CSuisse up
to 35 bln Sfr
By Katharina Bart
ZURICH, Dec 14 Switzerland's banks have
suffered a major setback in their fight to maintain client
secrecy after Germany rejected a key tax pact to sweep Swiss
accounts clean of tax dodgers.
Switzerland is trying to protect its $2 trillion offshore
banking industry by striking deals with European neighbours that
allow their citizens to pay tax on secret Swiss accounts without
revealing their identity.
The German deal's failure -- even as others with Britain
and Austria go ahead -- is a big blow to the Swiss government
because the northern neighbour has traditionally been the
biggest foreign market for Swiss private banks, which hold an
estimated 150 billion Swiss francs ($161 billion) in German
"Switzerland still hasn't solved the problems of its past,
which means it should put together a Plan 'B' as quickly as
possible," said Heiko Kubaile, partner at KPMG in Zurich and
head of German tax and legal.
Swiss officials are struggling to reconcile strict national
laws protecting banking secrecy with intense international
pressure to get at lost tax revenue.
Switzerland remains embroiled in a long-simmering tax
dispute with the United States targeting Credit Suisse
and a host of other banks suspected of helping clients dodge
Switzerland has agreed to allow foreign governments to get
information on groups of bank clients based on suspicious
behavioural patterns, such as using a bank-provided mobile
phone, bringing itself into line with standards laid out by the
Organization for Economic Cooperation and Development on group
But that isn't likely to stop influential European
neighbours like France and Germany from doing everything in
their power -- including purchasing leaked bank data -- to claw
back tax income.
"International pressure will increase, and I say this
without any ridicule, malice or an excursion into Western
movies," said Germany's Peer Steinbrueck, the opposition Social
Democrats' (SPD) candidate for German chancellor in next year's
Steinbrueck famously referred to the Swiss as Indians
running from the cavalry when he cracked down hard on bank
secrecy as finance minister in Merkel's 2005-09 "grand
Switzerland is sticking with the withholding tax model to
clean up its past, finance minister Eveline Widmer-Schlumpf said
"We don't have another short-term option that conforms with
the laws of our country to let the past be the past,"
Widmer-Schlumpf told Swiss television.
In saying so, she implicitly rejected again an automatic
exchange of information, which is commonplace in parts of the
European Union though some member states are resisting it.
Experts say the automatic option is a less attractive one
because it means more work for cash-strapped foreign
governments, many of which had hoped to fill budget holes
quickly with advance payments from Switzerland.
A recent study by the European Policy Forum, a London-based
think tank, argues that an outright exchange of information on
taxing savings hasn't worked within the EU because data cannot
be effectively used by fiscal authorities.
By contrast, Swiss upfront payments from withholding tax
deals have allowed Britain's finance minister to say he expects
to take in 5 billion pounds ($8.1 billion) over the next six
years through the deal, part of an effort to counter a shortfall
in tax revenue caused by economic weakness.
Germany is forfeiting 2 billion Swiss francs in upfront
payments from Switzerland as a result of rejecting the deal.
Now, Switzerland faces scrutiny on how it deals with foreign
pressure, and in particular how it puts the group request rules,
laid by the OECD, into place.
NO WAY OUT
Swiss banks are suffering heavy outflows in Europe due to
the tax pressure, though bigger players are countering the
withdrawals with inflows from Asia, the Middle East and South
UBS has said it could see withdrawals of 12-30 billion
francs from total European assets under management of over 300
billion, while Credit Suisse put its own outflows at up to 35
billion francs in coming years.
UBS has already taken steps: earlier this month, the bank
said it will cut up to 35 German jobs when it closes branches in
Dortmund, Essen, Rosenheim and Wiesbaden, part of efforts to
The German deal's failure means there increasingly is no way
out for wealthy Germans who are hiding money in Switzerland.
"Taking money elsewhere and continuing to hide is an
illusion. Very few clients will choose that route for their
money," said Hans-Joachim Jaeger, Zurich-based tax expert with
Ernst & Young.
German officials are preparing for a flood of wealthy
Germans -- who had held out the hope a withholding tax deal
would regulate their undeclared assets -- to turn themselves in.
A flourishing trade in leaked bank client data to get at the
names of alleged tax dodgers -- which has become commonplace in
recent months -- is also likely to continue.
Switzerland is slated to unveil specifics of a clean money
strategy to sweep undeclared assets out of the country, which
could include beefed-up client disclosure requirements by banks.