Germans who use Swiss banks to keep fortunes from the German state may soon be facing hefty new tax bills from the Swiss authorities - but will avoid prosecution in Germany, according to Michael Offer, spokesman for the German finance ministry.

"Initial talks on this issue went well," Offer said, without going into details.

A complex legal tussle between Germany and Switzerland over tax evasion has been running since the spring, when a series of CDs containing evidence of massive tax evasion by Germans using Swiss bank accounts were sold to the German taxman.

No handouts

Swiss banks will protect the names of their customers

Offer said that the two governments are now planning to sign a double taxation agreement by the end of this month, which will set the protocol for dealing with the hidden money. But Offer denied media reports suggesting that a spectacular deal had been reached, whereby Switzerland would hand the German state 30 billion euros ($42 billion) in order to protect its banking secrets.

"Speculations about billion-euro return flows to the German state have absolutely no basis," Offer said. "There are no secret papers either."

New taxes

Instead, Switzerland will in the future impose a new tax on German banking customers, and revenues will be passed on to Berlin. But the names of the customers will not be handed over.

The two sides are reportedly considering a flat rate tax of 35 percent, 10 percent more than would be payable as capital gains tax in Germany.

An agreement has also been proposed for German savings that have been earning interest on investments in Swiss bank accounts for years. According to news magazine Focus, the banks will calculate the amount by which the funds have grown in the past 10 years, and will transfer 35 percent of this directly to the German state.

A scandal erupted when a CD containing bank account data was stolen

Volker Wissing, chairman of the German parliament's financial committee, told the magazine, "There are only winners, except for the tax cheats."

Constructive, but secret, discussions

Offer commented that the bilateral working group set up in March is aiming to set up a permanent solution to the problem of untaxed capital investments set up by Germans in Switzerland. "The initial discussions were constructive," he said. "Both parties have agreed to keep the details confidential."

It will be decided in the autumn whether these discussions will lead to formal negotiations, but Offer says that the new protocol, which is almost ready to be signed, meets the standards of the Organization for Economic Cooperation and Development (OECD) in terms of transparency and the effective exchange of information.

Author: Ben Knight (AP, dpa)

Editor: Nicole Goebel