Even though LU and AT agreed to end transitional period when they signed the directive in 2003, LU and AT are now demanding an equal playing field with Switzerland. The reason for this sudden change in heart, is that LU & AT never envisaged that the five European partners would ever agree to exchange info on demand. Therefore they played a poker game by agreeing to end transitional period when the 5 countries agreed to exchange on demand, but have now lost their hand. So they are moving the goal post of an agreement they already signed. Therefore LU / AT will try stop the 5 countries from providing information on demand by :-

1. not approving the anti-fraud agreement with Liechtenstein which covers exchange on demand, and
2. vetoing EU Commission mandate to discuss exchange of information on demand with the other 4 countries, and
3. unrelated to the exchange on demand issue, they are being obstinate for no reason except to punish ECOFIN by vetoing the EU savings tax amendment. This is being done indirectly by not agreeing to the give the EU Commission a mandate to negotiate with the 5 countries the exchange on demand and the revision of savings tax issues.

On the basis of ECOFIN discussions and the Presidency paper, it was suggested:

1. to address the extended scope of the Savings Tax Directive as a priority before dealing with the anti-fraud and tax cooperation agreements;
2. to keep the issue of the transitional period separate from the discussions on the amendments to the Savings Tax Directive;
3. to address the issue of the level playing field in the context of the amended Savings Tax Directive by inviting the Commission to start the negotiations with third countries on the application of the measures similar to those provided by the amended Savings Tax Directive;
4. to consider the latest compromise text on the amendments to the Savings Tax Directive as agreed so that the discussions on it could be closed in order to provide the Commission with a basis for negotiations.

Austria’s Finance Minister Maria Fekter has recently announced that talks on a planned bilateral tax agreement with Switzerland are due to begin in April. An official letter has been sent to Bern, Fekter explained, noting that a meeting with her Swiss counterpart Eveline Widmer-Schlumpf is expected to take place in April.

The European Commission confirmed plans at the end of last year to challenge similar landmark bilateral tax deals concluded between Switzerland and the UK and Switzerland and Germany pertaining to the taxation of savings held by British and German investors in Swiss bank accounts.

Undermining Switzerland’s hopes of negotiating further bilateral tax agreements with individual European Union member states, as a means to resolve the ongoing, longstanding disputes regarding undeclared assets held in Switzerland by EU nationals, the Commission recently asserted that the treaties are not compatible in their current form with European law.

The Commission argues that the tax deals undermine the objective of the Savings Tax Directive, a mechanism which allows member states to tax certain investments held by residents in other member states and certain third countries, including Switzerland. Opposed to the anonymity provision, the Commission is continuing to strive for an automatic exchange of tax information.

EU Tax Commissioner Algirdas Semeta recently insisted that any bilateral agreement that violates the EU Savings Tax Directive or EU agreements with third states is simply “not acceptable”. Banking secrecy must not be allowed to protect tax evaders, he stressed.

The bilateral treaty maintains traditional Swiss banking secrecy, by regularizing accounts without, however, disclosing individual identities.

• to address the extended scope of the Savings Tax Directive as a priority before dealing with the anti-fraud and tax cooperation agreements;
• to keep the issue of the transitional period separate from the discussions on the amendments to the Savings Tax Directive;

A diplomatic source notes that Luxembourg and Austria are not yet ready to waive their veto on opening new discussions with Switzerland on enlarging the scope of this country’s 2004 agreement with the EU. Luxembourg and Vienna first seek assurances that they will be placed on the same footing as the Swiss Confederation and that they will therefore not be forced to abolish banking secrecy if Bern does not have to do the same. Switzerland, however, rules out that possibility.

There is also another legal and philosophical issue, raised indirectly by Switzerland with signature of its Rubik agreements with the United Kingdom and Germany. Can member states conclude bilateral agreements in policy areas where the EU has inherited certain competences (taxation of interest income on savings, in this case) and under what conditions?

“In theory, they are free to go further” – which is the case with the Rubik agreements, since these also concern dividends and capital gains. “But in practice, this is very complex.” The Commission’s legal service has put out a very critical opinion on the Rubik agreements. In short, “this is a huge subject that will have to studied carefully”.

The head of a leading Swiss business lobby group said on Sunday he was open to a requirement that banks ask clients to declare their money is taxed, but said that asking for proof is a step too far. "I am open to the idea of a self-declaration for foreign customers," Gerold Buehrer, president of the economiesuisse lobby group told the SonntagsZeitung paper.

Buehrer said he opposed isolated action by Switzerland and any move should be coordinated by an international body, such as the Organisation for OECD, Just out of reasons of practicability this is not doable. Buehrer said. "Such a constraint would be tantantamount to a severe disadvantage for the Swiss financial centre," Buehrer said.

"Demanding that a client must prove that he has paid taxes is an impossible undertaking," Credit Suisse CEO Brady Dougan told the SonntagsBlick newspaper in an interview.

Zuercher Kantonalbank Chief Executive Martin Scholl told Der Sonntag newspaper that such a requirement would be a "Mission Impossible."

Swiss bankers announce Rubik definitely proceed in 2013!

Swiss banks could be forced to carry out checks on the tax status of foreign assets they hold under a new "clean money" strategy being proposed by the finance minister, it was reported on Sunday.

Eveline Widmer-Schlumpf wants banks to go a step further than requiring a tax declaration from foreign customers, according to the Sonntags Zeitung. She wants them to examine suspected cases of evasion to ensure they are respecting the law. Sonntags Zeitung paper described the proposal as "explosive" as banks have so far fought against compulsory checks.

However, it is likely the Swiss finance industry will reject such a draconian step.

This article indicates the SPD is unaware that the Rubik is being blocked by the EU Commission. For instance "... Switzerland has an interest in an agreement. It is the Swiss banks' access to the European market.". The EU commission specifically forbids Germany permitting Swiss banks to gain access to German markets.

The German SPD reiterates opposition to "Rubik" The states run by opposition refuse to approve "Rubik" in the Bundesrat

Finance ministers of the Länder led by the opposition met late Wednesday, to define a common strategy on the folder "Rubik". The regions concerned have decided to bury - the Bundesrat - the tax agreement with Switzerland. Unless substantial amendments to negotiate with Bern. "We have defined a list of eight points he will renegotiate with Switzerland. Must make agreement more tightly to limit inequalities between honest taxpayers and those who practice tax evasion, "said Heiko Geue, Secretary General, Ministry of Finance of Saxony-Anhalt, in the former GDR.

Rubik architects still blind to reality

The states run by opposition also want to tax more the 130 at 160 billion euros (169 francs 208 billion) of capital parked in Switzerland for many years. The current rates - from 19 to 34% depending on the agreement - are unacceptable. "The price of anonymity, it is a rate of 50 to 70% tax!" Walter Borjans requires that an estimated 5 billion the amount to be paid by Swiss banks, instead of two billion under the agreement.

A third difficulty concerns the estate tax. "But in this respect, Wolfgang Schaeuble told us that Switzerland was ready to move ensures Heiko Geue. We want to ensure that the money deposited in Switzerland will be much struck by the estate tax. "

The ball in the Swiss court

The list of grievances of the SPD will be sent to Wolfgang Schäuble by two or three weeks, on condition that he return to the path of negotiations with Bern, Berlin has so far excluded. For the SPD, the ball is now in the court of Switzerland. "Switzerland does she want to protect the money of dictators, the billionaire Greek and German fraudsters? This is the question to be asked by the country, said Norbert Walter Borjans ... Switzerland has an interest in an agreement. It is the Swiss banks' access to the European market - and the country's image. "

On the sidelines of World Economic Forum in Davos in late January, the President of the Confederation Eveline Widmer-Schlumpf had defended the text, explaining that there was not much scope for renegotiation. Only the average number of information searches can still possibly be reviewed, she said.

Pushed by force of circumstance,” added the French MEP, “Greece finds itself obliged to contemplate a bilateral agreement with Switzerland, like the United Kingdom and Germany”. This would not be a cure-all, though. “Accepting a partial levy on fraudulent investments rather than prosecuting fraudsters is institutional recognition of tax fraud and a bad deal financially speaking.”

Catherine Trautmann went on to say that “the Union should follow the lead of the United States, which has forced Switzerland to transmit the bank data of presumed fraudsters”.

The Danish EU Presidency shares this view. In its recent note on the revision of EU rules on savings taxation, it points out that Berne has made a number of concessions to the US, including on grouped requests for information on presumed fraudsters. Copenhagen therefore considers that it is “important that all EU member states coordinate their positions so as to ensure that Switzerland treats its European partners at least as well if not better than the United States”.

The EU’s 27 finance ministers may debate this matter on 21 February. Meanwhile, Catherine Trautmann turned to the Commission. What does it plan to do now that its services have concluded that Switzerland’s Rubik agreements with Germany and the United Kingdom “are illegal”? What does it propose for the future, “now that its draft directive on savings taxation has been shelved by the Council, and in particular Germany”?

The situation is not quite that clear-cut, however. On the one hand, the United Kingdom and Switzerland have apparently come to an understanding on making “technical” changes to their agreement. These are thought to satisfy the Commission, whose legal service has given a very critical opinion of the Rubik agreements. On the other, the die is not yet cast in Germany. The Länder,most of which are headed by the Social-Democrat opposition, were set to adopt a position on Rubik on the evening of 15 February. So far, they have voiced opposition to the agreement between Bern and Berlin. Lastly, Germany and the United Kingdom are still ambiguous about their real intentions.

It has accordingly held “very constructive discussions” with Germany and the United Kingdom to make their Rubik agreements compatible with European rules on savings taxation. “We agreed on the need to remove from their scope” all products covered by existing European rules on savings taxation and those that may be covered in the future. “This should enable us to put this problem behind us and concentrate on the intra-EU negotiations” on the taxation of earnings on savings.

At the same time, the head of the Commission’s task force on Greece, Horst Reichenbach, warned Athens that it must not exceed certain limits if it should decide to conclude an agreement with Switzerland. "A tax amnesty is conceivable for the past, for the future, however, the scope of the agreement will have to be limited to dividends, capital gains and wealth tax.” There is also no question of granting Switzerland, in exchange, too many advantages on access to financial services markets (one of Bern’s demands): the Union’s “external competence” in this area must be respected.

1. Automatic exchange of information via savings tax will eventually be imposed on Switzerland
2. Rubik must omit interest, thereby sinking the purpose of Rubik, i.e. avoid exchange of information
3. Swiss banks will not gain access to markets in Germany & UK

Rubik omitting interest has no purpose

1. The income is never regularized
2. Customer earning interest will be subject to the inevitable automatic exchange of information in future savings tax revisions;
3. Withheld savings tax on interest does not fulfill the customer's fiscal obligation in their home state, and thus he can still be subject to penalties, etc.

Switzerland and the EU intend to take forward discussions on a number of 'dossiers', including in the area of energy, agriculture, health and carbon emissions trading. However, tax is likely to be the most sensitive subject of discussion, with the EU taking a dim view of the tax agreements concluded with Germany and the UK last year enabling British and German citizens to maintain secret accounts in return for paying tax on account income.

Accordingly, the Swiss administration underscored in its statement that Switzerland's willingness to discuss the tax dossiers “requires a correspondingly constructive approach by the EU on the planned implementation of the bilateral agreements with Germany and the United Kingdom on the withholding tax system”.It states: “The Federal Council will continue the talks with the EU on this basis.

Frightening ransom note !

The Swiss administration's statement continued: “Any solution of the institutional issue would have to be compatible with the workings of the institutions of both parties and would have to respect the sovereignty of both sides. Automatic adoption of EU law by Switzerland is not acceptable.”

The treaty maintains traditional Swiss banking secrecy, by regularizing accounts without, however, disclosing individual identities.

Determined to gain support for the treaty from the SPD-led states in the Bundesrat, where the coalition Christian Democratic Union and Free Democratic Party no longer have a majority, German Finance Minister Schäuble had reportedly intended to amend the provisions, to allow more instances of mutual assistance. The current text limits the number of requests for information to 999 over a period of two years.

Semeta, a former Lithuanian finance minister, has helped stall the bilateral tax agreements struck by the U.K. and Germany by ordering the two countries to redraft segments that clash with existing EU rules.

Ignoring the substantial headwinds, Alfredo Gysi, head of the Association of Foreign Banks in Switzerland said “I’m personally still optimistic. It’s still in the highest interests of all parties involved to find a solution”.

CH in a strong position to threaten EU?

Copenhagen has convened a high-level meeting of member state experts to review the savings taxation issue. In its view, Swiss "concessions" to the United States, the United Kingdom and Germany on combating tax evasion justify rapid renegotiation of Berne's savings taxation agreement with the EU, to enable all 27 to benefit from Swiss generosity. Bern has agreed, for instance, to relax rules on information exchange on request between tax administrations by authorising grouped requests for information under certain conditions.

Luxembourg and Vienna continue to stand their ground: they want the same treatment as the Swiss Confederation. Consequently, they wish to see EU legislation adapted before any decisions are taken on extending its scope (to products like life insurance and certain intermediary entities like foundations) and concluding a new agreement with Switzerland.

The two states nevertheless are said to have shown signs of being more open, which will encourage the Danish Presidency to hold bilateral discussions with them before referring the matter to the 27 finance ministers on either 21 February or more likely 13 March.

Luxembourg and Austria have acknowledged that the "international developments" provoked by Switzerland have to be taken into account, meaning that they too could make concessions on providing bank information on request provided they are not obliged to do away with their banking secrecy.

The question is how the EU can reconcile rapid progress with Switzerland on savings taxation with the condition that Bern itself set for the opening of talks, on 1 February, namely the European Commission's green light for Rubik. The EU executive disputes the legality of a number of elements – rate of taxation to be withheld in Switzerland, whether payment constitutes full discharge of liability, etc – of the agreement between Switzerland and Germany.

It is worth noting that Denmark, like many other EU Member States, seems to be misled by Rubik supposed efficiency, viz. "the memo suggests the scope of application for the accords is very large, covering all income made by investors in Switzerland."Rubik has several major loopholes, namely:-

• Specifically exempts trusts, foundations, establishments which do not have an identifiable beneficiary i.e. 95% of these
• Exempts structures which supposedly have a commercial purpose, e.g. untaxed Hong Kong "trading" company
• Doesn't touch life insurance unit-linked issued by non Swiss insurers, e.g. Liechtenstein or Irish or Luxembourg tax free wrappers
• Doesn't consider the concept of Paying Agent Upon Receipt (or Distribution)

LDF doesn't touch vast majority of Liechtenstein's customers

The answer it seems is that LDF is designed to poach customers from Switzerland who are fleeing the more expensive Rubik deals. Liechtenstein's banks never ever had many UK resident clients. Yet the LDF has already attracted a few thousand UK customers, most of which fled Switzerland. This is no problem, yet Liechtenstein is using the LDF as a public relations exercise to say it is shedding its tax haven image. This is far from the truth. The LDF accords are merely a way of attracting other tax haven clients.

The LDF is a "groundbreaking" amnesty for offshore tax evaders has been extended by a year as part of a deal that underlines Liechtenstein’s efforts to shed its reputation as one of the most secretive havens in the world.

Liechtenstein has agreed to exchange information with the UK under a double tax treaty that will come into force in January 2013. The deal helps Britain ensure that offshore income is taxed while extending a number of UK tax advantages to Liechtenstein’s residents, companies, trusts, foundations and investment funds.

More than 2,000 Britons with undeclared offshore assets have already made use of the Liechtenstein Disclosure Facility, which charges relatively modest penalties for investors wanting to come clean. It will now be available for an extra year, until April 2016.

Revenue & Customs said the decision to extend the facility, which it expects to yield GBP 3bn, reflected its better-than-expected uptake. Dave Hartnett, permanent secretary for tax at HMRC, said: “As the number of disclosures already exceeds the total we originally expected for the whole period of the LDF, we have agreed with the Liechtenstein government that it makes sense to extend the facility by one year to 5 April 2016.”

Tax advisers said the extension of the agreement would compensate for the hiatus that occurred after the UK announced it was negotiating a deal with Switzerland in October 2010. Investors held back in the hope of securing more generous terms from the Swiss deal, which promised to preserve their anonymity in return for paying withholding taxes and a one-off levy.

But when details of the controversial Swiss deal emerged last August, advisers said it would be significantly more costly than using the LDF. Simon Airey of DLA Piper, a law firm, said the cost of interest and penalties under the LDF averaged 10-15 per cent of the investor’s capital.

Fiona Fernie, a partner at accountancy firm BDO, said: “We have seen a steady stream of interest from clients in the LDF since its launch, but given that there are still many people who are only just finding out about this, it makes complete sense to extend it by a year, especially given the uncertainty around the Swiss-UK deal.

1. Interest income remains unregularised;
2. The EU savings tax withheld on interest does not fulfill the taxpayers fiscal obligations;
3. The customer could still be subject to future automatic exchange of information as per future EU savings tax amendments.

It is highly unlikely the EU Commission has agreed to Rubik. The argument that the EU savings tax is embedded in Rubik is completely misleading. The core principles that EUSD does not fulfill the tax payers obligations, that automatic exchange of information on interest is still the aim and that interest is not regularised, ensures that the EU Commission would never give up its objections to Rubik including the interest module.

Note that there has been no statement from the EU Commission corroborating Schauble's claims that the issue has been settled.

A likely explanation of Schauble's statements in claiming that Rubik is not in conflict with the EU savings tax to get rid of the German SPD party objections to Rubik.

Bare in mind, in 2010 that Liechtenstein withheld less than CHF 10 million EU savings tax on assets of CHF 170 billion, implying that 95% of assets are in foundations, trusts and establishments, which Rubik doesn't touch. Rubik specifically exempts structures where the beneficiary cannot be identified, "An individual resident is not considered to be a relevant person with regard to assets of associations of persons, asset structures, trusts or foundations, if it is not possible to ascertain the beneficial ownership of such assets, e.g. due to the discretionary nature of the arrangement."

In virtually every case of a structure used in Liechtenstein, the beneficiary cannot be identified (i.e. establishment has no shareholders, foundations rarely have named beneficiaries). Therefore a Rubik agreement will have hardly any impact on accounts in Liechtenstein.

Therefore Rubik for Liechtenstein seems to be a PR exercise without teeth in trying to shed its tax haven image.

Furthermore, Liechtenstein is aware that if it manages to ratify a Rubik agreement with Germany, this would disrupt the EU Savings tax amendments. If Liechtenstein wanted to really shed its tax haven image, it would rather throw its weight behind the EU savings tax amendments with automatic exchange of info.

1. They secretly agreed in Parliament, without publicly notifying anyone, to re-nogotiate Rubik to drop the definition of interest from Rubik.
2. The salacious issue is Materially, the withholding tax on interest would be in Switzerland still enshrined in the law. In return, Britain and Germany were set in their national laws to the Swiss withholding tax for citizens of their country would compensate effect. About this regulation of the withholding tax on interest rate, there would be no treaty anymore, but only an agreement at government level. Thus, the EU Commission would have no chance to take legal action against the bilateral arrangements between Germany and the UK.

This means that the Swiss approached Germany and UK to put in their own legislation that the withholding EU savings tax is full & final settlement. As this will be enshrined in law instead of a bilateral agreement, they think the EU Commission will not be able to intervene. As this law conflict with the EU directive's objectives, it remains to be seen if this legal ploy will work...

"It is not only financial institutions who should pay a fair share" of the costs of the financial crisis, he declared during his 'State of the Union' address to the European Parliament in Strasbourg. "We cannot afford to turn a blind eye to tax evasion."

Barroso hammered out the message that "it is time" for the 27 member states to agree on revision of the EU's savings taxation directive and to give the European Commission a mandate to renegotiate the tax agreements the Union has concluded in this area with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, in 2004.

Luxembourg and Austria have brought this issue to a standstill . The two countries refuse to be forced to switch from a withholding system to automatic information exchange between tax administrations, and thereby to abolish their banking secrecy if Switzerland is not obliged to follow suit. Berne has no intention to do so, however.

In August, Switzerland sealed bilateral financial agreements with Germany and the United Kingdom that make provision for a withholding tax, applicable from 2013, on wealth stashed by German and British residents in Swiss banks and on future income received in this country.

Berlin argues that this so-called 'Rubik system' will be "equivalent on a long-term basis" to that of automatic information exchange.

Italy is also stalling, but for different reasons Before revising the savings taxation directive and the related agreements with non-EU states, it argue should put in place a surveillance system with sanctions to monitor application of existing legislation Italy also argues that there is a need to prevent the conclusion of bilateral agreements like Rubik u preferential treatment they give certain countries is extended to all EU member states The savings taxation item has been removed from the agenda of the 4 October Ecofin Council.

• He claims the EU Commission has purposefully drafted a weak directive at the request of Switzerland.
• Shows no interest in the amendments closing the very loopholes he complains about.
• He has requested reports on the flow of tax returns of the directive, which will be completely redundant if loopholes are closed

• External conditionality: Luxembourg and Austria want the directive to apply in its amended form only if the same or equivalent measures are applied by Andorra, Liechtenstein, Monaco, San Marino, Switzerland and 10 dependent and associated territories of the Netherlands and the UK ;
  

  It also proposes to deal with the anti-fraud agreements (draft agreement with Liechtenstein, mandate for negotiations with Andorra, Monaco, San Marino and Switzerland) separately from discussions on the savings tax directive. The presidency proposes to ask the Commission to start negotiations with Andorra, Liechtenstein, Monaco, San Marino and Switzerland with the aim of ensuring that they apply measures that are equivalent to the savings tax directive in its amended form. This was already done when the existing savings tax directive entered into force in 2005, under savings tax agreements with the five countries. And the presidency proposes that the latest version of the draft directive be considered as agreed for the purposes of those negotiations. (This would however not prevent the directive from being finalised at a later stage.)

• Transitional period: Luxembourg and Austria want their transitional arrangements under the directive to be maintained until Switzerland agrees to provide tax informationautomatically. They fear that anti-fraud agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland will create the required conditions for ending those transitionalarrangements; this would oblige them to exchange information automatically with other member states, whereas their (mainly Swiss) competitors would only be required to provide tax information on request.
  

  The presidency proposes that the transitional period be treated for the moment as a separate issue and addressed at a later stage.

1. to address the extended scope of the Savings Tax Directive as a priority before dealing with the Anti-fraud and tax cooperation agreements;
2. to keep the issue of the transitional period separate from the discussions on the amendments to the Savings Tax Directive;
3. to address the issue of the level playing field in the context of the amended Savings Tax Directive by inviting the Commission to start the negotiations with third countries on the application of the measures similar to those provided by the amended Savings Tax Directive;
4. to consider the latest compromise text on the amendments to the Savings Tax Directive as agreed so that the discussions on it could be closed in order to provide the Commissionwith a basis for negotiations.