Thursday, December 01, 2011

Swiss tax deals with UK, Germany - where is the EU going with this?

The European Union has said clearly that it does not like the UK-Swiss and German-Swiss tax deals - which we have demonstrated will raise only a fraction of what has been promised and would be profoundly harmful to democracy in both of the countries, UK and Germany, that will be victims of the deals. It has raised the clear possibility of legal action to strike these down.

Now World Radio Switzerland is carrying a useful interview with Jean Russotto, a partner in the Brussels office of Steptoe & Johnson LLP and a close observer of EU-Swiss relations, who gives his insider opinions on what is currently happening, and where things might lead. We provide a transcript of the interview:
WRS: What does the Commission see wrong with the deals?

For the last two months the Commission has been looking into these two agreements and has largely concluded that probably, not definitely, both the UK and Germany have gone beyond what is appropriate and legally possible in negotiating two tax treaties with a third country, Switzerland, whereas these competences are basically reserved to the EU. Therefore it is a very basic fundamental issue of EU law: do these two country member states have the right to enter into an agreement on a subject which is basically, said the Commission, reserved to the EU. That is the crux of the matter.

WRS: Are they within their rights to do this?.

The analysis is going on in Brussels, the commnuity machine has started, legal opinions are being issue right and left; and at the same time negotiations and discussions are going on between the EU namely the Commission and Germany and the UK at the same time.

WRS: what if the Commission does officially block these accords

Well, there is a rather lengthy procedure which is referred to as an infringement procedure. Whereby the Commission approaches member states, discussed the pros and cons, then after a few weeks or months, probably shorter, if no progress is being made on both sides, negotiations are failing, which is not the case right now by the way, the Commission prepares an issue: what is called a reason opinion - that is a writ sent to the two countries, here Germany and the UK, saying let’s assume you have 2 or three months to comply. The negotiation goes on, and if nothing happens after the expiration of the deadline, then the Commission begins proeedings before the European Court of Justice. But we are not yet there.

WRS: What is the status of accords between EU and Switzerland?

Right now you have two things, you have the EU STD which is a Directive permitting automatic exchange of info within the EU, with two exceptions Austria and Luxembourg. At the same time, in parallel, the EU has entered an agreement with switzerland, and four others, such as Monaco, San Marino etc.

These two bodies of laws which are essentially similar are part of harmonised European law, and that is why the Commission is saying ‘that does exist’ and Germany cannot go too far because there is already a body of law: that is why the infringement procedure is being considered. Germany is being considered to have somehow transgressed what has already been put together by the EU. And the core of the dispute is to know: 1) whether it is possible or not to enter into an agreement of that sort while EU law is being harmonised, and 2) assuming that is the case, which part of this agreement could be viewed as contravening European law - and that decision has not been made yet.

WRS: Where do you think the case will go in the end?

I think experience says that in really complex cases involving third countries and by the way, large sums of money for the future which are key to the EU member states right now, discussions are always a way to resolve a particular sensitive issue. My view is that the Commission, although its case sounds legally rather strong – there is no doubt about it – is not about I think to launch a formal procedure against two significant member states. Therefore were are heading I think towards a possible compomise where the agreement may continue to stay, but would have to be amended.

The real issue is: will Germany and the UK accept that. But the more complex aspect is whether or not this is satisfactory to Switzerland, and I don’t think it is. Because the deal is a very subtle, compex and very refined machinery and construct, and I don’t know how a negotiation could amend such a very refined machine. It will take time. So it will be on one hand a complex legal issue, and at the same time a question of generating additional income for the treasuries of the UK and Germany.

We also note, via Faisal Islam, that the UK's Office for Budget Responsibility has declined to endorse the UK's inflated estimate of the UK-Swiss deal. The Financial Times has seen through the deal too. More are waking up all the time.

We would be disappointed to see a weak mish-mash compromise come out of this. The deals should be scrapped.


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