What are the European issues that touch the Swiss financial centre in particular?

a) Taxation of savings
 
It should be recalled that in June 2003 the EU Council of ministers for the economy and finance (ECOFIN) formally approved the contents of a Directive that in broad terms establishes the following:

• 12 member states will begin exchanging tax information automatically on January 1, 2005.
• Austria, Belgium and Luxembourg will levy a tax withholding at source, splitting the receipts thus collected on a 75/25 basis. The rate of the withholding tax has been set at 15% for 2005-2007, 20% from 2008 and 35% from 2011. This system will remain in force for a provisional period, the length of which has not yet been specified, and should end as soon as certain conditions relating to the third-party countries are met.
• Third-party countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) will be required to adopt equivalent measures, as will the dependent and associated territories of member states (such as the Channel Islands and Cayman Islands). Contrary to the EU’s initial intention, these dependent and associated territories are no longer required to adopt identical measures to those of the 12 member states.

The terms of the agreement between Switzerland and the EU, initialled in June 2004, can be summarised as follows:

• Collection of a withholding tax equal to the withholding tax levied by Austria, Belgium and Luxembourg, with a maximum rate of 35%.
• Adoption of equivalent measures by the third-party states mentioned above and the dependent and associated territories of member states.
• Collection of a withholding tax on certain forms of interest obtained by a natural person who is resident for tax purposes in an EU member state from a paying agent based in Switzerland.
• Division of tax receipts on 75/25 basis
• Exchange of information on a voluntary basis
• Regular updating of technical procedures but no thorough revision until sufficient experience has been gained following the agreement’s full implementation, i.e. several years after the introduction of the 35% withholding tax rate.

A Memorandum of Understanding annexed to the agreement stipulates in particular that Switzerland undertakes to revise the double taxation treaties with EU member states so as to provide administrative help in the event of tax fraud or the like, with the exception of ordinary tax evasion.
 
In June 2004, bearing in mind the huge amount of work involved in the application of the above measures in all the countries concerned, it was decided that the European Directive and the agreement with Switzerland should come into force on July 1, 2005 rather than January 1, 2005 as initially planned.
 
 
b) Fighting fraud
 
The agreement between Switzerland and the EU provides for greater cooperation in combating illegal activities affecting their respective financial interests, particularly in relation to indirect taxation, subsidies and public contracts. The two parties have established a new framework for administrative and legal assistance. In future, any fairly serious offences in the area of indirect taxation may be subject to enforcement measures. The signatories will be entitled to mutual assistance in the case of indirect tax evasion totalling at least EUR 25,000. Laundering of the proceeds of illegal activities is also covered by the agreement, provided that the predicate offence is subject in both countries to a custodial sentence of more than six months. In Switzerland this would correspond to an act of tax fraud or professional smuggling. It should also be noted that only offences committed six months or more after the agreement is signed will be affected and an appeal process with suspensive effect has been provided for persons involved in such legal proceedings.
 
 
c) Schengen/Dublin
 
The Schengen agreement does not affect the financial markets other than in relation to legal assistance in criminal proceedings. The principle of double incrimination has long been a sticking point in the negotiations. Switzerland found it unacceptable to provide legal cooperation in cases of mere direct tax evasion. Europe, however, maintained that Switzerland would in future have to accept in full whatever measures were decided in Brussels on future developments in the Schengen agreement (future acquis), even if they did not conform to the principle of double incrimination. This problem has been resolved by the introduction of an opt-out clause allowing Switzerland to refuse at any time to implement any undesirable changes in EU direct taxation legislation. The Schengen Agreement is thus the first international treaty that recognises the banking sector's duty of confidentiality in the context of direct taxation.