India to begin talks in Dec for a new tax treaty with Switzerland.
Pressed hard for giving access to details of money stashed away by Indians and other overseas clients with them, Swiss banks have offered to tax this wealth on behalf of the respective foreign governments.
India will begin talks in December for a new tax treaty with Switzerland so that it could get details about the defaulters. There has been a long-running demand in the country for concrete actions to bring back the ‘black money’ lying in highly secretive Swiss banks.
Besides India, a number of other countries are also said to be looking at similar treaties, while the US recently reached an agreement for giving access to close to 4,450 bank accounts of Americans with Swiss banking major UBS.
As an alternative to the information exchange, Swiss banks have mooted the idea of a ‘universal withholding tax’ — wherein they would tax the earnings generated from the wealth of foreigners deposited with them and transfer the proceeds to the government of the concerned country — and is currently discussing the same with the relevant authorities.
When asked about the proposal and its applicability to the wealth deposited by Indians in Switzerland, the Swiss Bankers Association’s Head of International Communications James Nason said: “We are in contact with the Swiss authorities about the proposal, so it would be premature to publicise more details for the moment.”
While there are no details available about the amount of money deposited from India there, assets held on behalf of foreign clients at the end of June stood at 2,237 billion Swiss francs (over Rs 1,00,00,000 crore), which represented 56 per cent of total assets held in Swiss bank accounts.
Out of this, about 694 billion Swiss francs (over Rs 30 lakh crore) were held by foreign private clients.
Speaking at the annual Swiss Bankers Day recently in Geneva, Swiss Bankers Association (SBA) CEO Urs P Roth said that the withholding tax would generate revenue to the individual countries from the wealth deposited by their people, without disclosing the identity of the account holder.
Roth said that SBA was discussing the model with the Swiss Federal Tax Administration and it had been received with great interest among the Swiss authorities.
“The model would generate tax revenues, while respecting the privacy of bank clients and it would represent an efficient alternative to a system of automatic information exchange,” he noted.
If implemented, this proposal would allow banks to tax the earnings generated by the wealth deposited there.
The Swiss banks have offered to charge tax directly at source on behalf of the foreign country with which a taxation agreement is in place. The revenue would be forwarded to the Swiss Federal Tax Administration for passing on to the client’s country of domicile. However, the identity of the client concerned would not be revealed.
Under this system, the foreign country would have a guarantee that all investment income — and not just a small portion as at present — received by their taxpayers via a Swiss paying agent would be subject to taxation.
The new tax would be of a final nature in legal terms; in other words, it would constitute a definitive tax assessment.
After the bank in Switzerland has deducted the tax, the bank client would — from the perspective of his home tax authorities — automatically have fulfilled his tax obligations with regard to this income,” Roth said.
According to SBA, another advantage would be that foreign countries could be offered the same tax treatment for those of their citizens with bank accounts in Switzerland.
Apart from charging withholding tax, the proposed model would also levy a retention tax on dividends, income from collective investments and capital gains.
A domestic withholding tax system is already in place in Switzerland for many decades, whereby 35 per cent of the annual interest paid on a savings account in a Swiss bank is with held and forwarded to the Swiss tax authorities.
The tax is applicable to anyone receiving interest or dividends from a Swiss-domiciled source, irrespective of their own domicile.
