The new Credit Suisse logo is seen on top of the bank's headquarters at the Paradeplatz in Zurich in this January 16, 2006 file photo.Siggi Bucher/Reuters
Switzerland and Germany are set to agree on Wednesday to settle a dispute over billions of francs stashed by German citizens in secret Swiss accounts, as the Alpine country tries to shed its tax haven image.
Strict bank secrecy has helped Switzerland build up a multitrillon-dollar offshore financial sector, but the country has faced an international campaign in recent years against tax evasion as cash-strapped governments seek to boost revenues.
Neighbouring Germany, whose citizens have an estimated 150 billion Swiss francs ($197-billion U.S.) hidden in secret accounts, is keen to claw back funds as it bankrolls the indebted euro zone and could set a precedent for other Swiss tax deals.
"Switzerland's banking sector has no interest in untaxed assets," Swiss president Micheline Calmy-Rey said in a statement on Saturday after meeting German Foreign Minister Guido Westerwelle, adding she expected an agreement soon.
Swiss banks will have to pay 2-billion Swiss francs ($2.6-billion) upfront to regularize legacy assets of German clients, according to media reports about the deal expected to be finalized on Wednesday.
That is significantly less than the 10-billion francs originally sought by Germany that was seen as too much for the biggest Swiss banks - UBS, Credit Suisse - to bear without undermining their capital base.
Other smaller banks will also have to contribute to the payment, although the money should ultimately be recouped from the banks' clients in what is effectively a tax amnesty.
"It is expected that UBS and Credit Suisse will be guaranteeing at least half of the prepayment as the banks have the largest amount of German clients," said Vontobel analyst Theresa Nielsen.
In return for limiting the advance payment, the two sides are expected to announce a withholding tax on future interest income of 26 per cent, above the 25 per cent Germany levies on capital gains and profits from share sales.
"We expect there will be several taxations to be added up," Vontobel's Ms. Nielsen said. "Hence, we believe the final amount could exceed a 2-billion franc prepayment."
Julius Baer paid a fine earlier this year to settle with German authorities, who have also raided the offices of Credit Suisse.
Britain is also expected to finalize a similar deal with Switzerland soon after agreeing to the principle of a withholding tax last year.
The introduction of a withholding tax marks a victory for Switzerland against proponents of an automatic exchange of bank information as it preserves client confidentiality.
"Withholding tax is a fair way of taxing German assets without an automatic exchange of information, and it also guarantees the confidential management of client data," Ms. Calmy-Rey said on Saturday.
However, Swiss attempts to reach a tax deal with the United States have stalled as the Department of Justice has launched an investigation into Credit Suisse as part of a broader probe into Swiss banks suspected of helping Americans evade taxes.
In 2009, the Swiss government cut a deal with Washington to hand over the details of 4,450 UBS accounts in return for the dropping of a damaging lawsuit against the bank.