Switzerland and Germany have agreed to settle disputes over wealthy Germans holding accounts in the Alpine state, drawing a line under what had been a fractious dispute lasting several years, the Swiss government said yesterday. Both countries said Switzerland's historic bank secrecy regime will remain. 

Under the agreement, signed in Berne, residents of  Germany can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts.

The matter has become particularly sensitive as German authorities have reportedly used public money to pay for information stolen from a Swiss-based bank; in the previous decade, it also paid for data stolen from LGT in Liechtenstein, the tiny jurisdiction next to Switzerland. Other countries have sought to breach bank secrecy in the hunt for alleged tax evaders. 

As part of the deal, Swiss banks will pay a guarantee of SFr2 billion (around $2.74 billion) to make up for their clients' undeclared money as well as “to state their resolve to implement the agreement”, a statement from the Swiss government said. The guarantee will be offset by incoming tax payments and refunded to the banks. 

Furthermore, future investment income and capital gains of German bank clients in Switzerland will be subject to a final withholding tax, the proceeds of which will be transferred to the German authorities by Switzerland.

The Swiss Finance Ministry said bank clients' privacy will be respected. Germany and Switzerland said the agreement will have a long-term impact equivalent to the automatic exchange of information in the area of capital income.

Key points of the agreement:

-  Future investment income and capital gains should be directly covered by a final withholding tax. The single tax rate has been set at 26.375 per cent. 

- German authorities will be able to request information (that must state the name of the client, but not necessarily the name of the bank) in the context of a safety mechanism, to prevent new, undeclared funds from being deposited in Switzerland. These requests will be limited in number and there must be “plausible grounds”.

- For those German clients already holding accounts in Switzerland, one chance to make an anonymous lump-sum tax payment should be given.

- Switzerland and Germany have decided to facilitate mutual market access for financial institutions.

The tax agreement ends a long-running dispute for which the Swiss and German governments have been negotiating a dual taxation agreement for several years. The issue went so far as the German public authorities reportedly paying for data stolen from banks located in Switzerland. The stakes are high: banking is said to account for around 12 per cent of Swiss gross domestic product.

The complete text of the agreement will be published after it has been signed by both governments, expected to take place in a few weeks' time. The agreement is expected to go into force in 2013.