Austria and the Zurich banking relationship

Austrian banking secrecy and its end

For most of the second half of the twentieth century, Austria was the only country in the German-speaking area that could compete with Switzerland in the business of discretion. Its banking secrecy, codified in § 38 of the Bankwesengesetz (BWG), prohibited credit institutions, their shareholders, officers and employees from disclosing or exploiting secrets entrusted to them or made known to them solely by reason of the business relationship with customers. The special feature of the Austrian rule was its constitutional protection. Under § 38 Abs. 5 BWG, the provisions on banking secrecy in paragraphs 1 to 4 can be amended by the Nationalrat only in the presence of at least half of its members and with a majority of two thirds of the votes cast.¹ No Swiss rule had equivalent status: Article 47 of the Swiss Banking Act, discussed in Part C of this book, is an ordinary federal statute backed by criminal sanctions.

This protection made Austria a destination of choice for savers from southern Germany and from Italy who wanted to keep their capital close to home but outside the reach of their tax authorities. Anonymous savings books, the famous Sparbücher, remained available in Austria until the pressure of the Financial Action Task Force led to their abolition for new accounts in November 2000.² Austria and Luxembourg were also the two member states of the European Union that were allowed to levy a withholding tax on interest paid to EU residents under the Savings Directive of 2003, in place of the automatic exchange of information applied by the other member states. Switzerland, as a third country, accepted an equivalent withholding tax regime in the savings taxation agreement with the European Community. The three jurisdictions therefore formed, for a decade, a zone of source taxation in the heart of Europe.

The end came more quickly in Austria than many observers had expected. As late as 2013, the Austrian finance minister Maria Fekter declared that she would fight “like a lioness” for banking secrecy. After Austria had given up its resistance to the revised Savings Directive in the spring of 2014, the EU tax commissioner Algirdas Šemeta announced in October of that year that banking secrecy was dead, once the finance ministers had agreed to extend the directive on administrative cooperation in tax matters.³ The domestic turn followed with the tax reform of 2015/2016. Parliament created a central account register under the Kontenregister- und Konteneinschaugesetz (KontRegG), which became operational on 10 August 2016 and could be queried from 5 October 2016. The register records account holders, account numbers and the institutions concerned but not balances or transactions. Access to the latter, the Konteneinschau, requires judicial approval and is subject to conditions of proportionality.⁴

The constitutional provision in § 38 BWG remains in force. What changed is the list of exceptions, which now includes the automatic exchange of financial account information under the Gemeinsamer Meldestandard-Gesetz (GMSG), Austria’s implementation of the OECD Common Reporting Standard, and the access rights under the KontRegG. Austria began exchanging data automatically with the other EU member states from 2017.⁵ For the private client, Austrian banking secrecy has thus been reduced to what Swiss banking secrecy has also become: a strong rule of professional confidentiality towards private third parties, which yields to the tax authorities within the framework of international standards.

The relevance of this history for Zurich lies in the competitive landscape it created. As long as Austria offered constitutional secrecy, anonymous savings books and withholding tax in place of reporting, it was the natural first stop for German clients who wanted discretion and a Swiss account was the second. The Austrian banks in Vorarlberg, Tyrol and Salzburg were well placed for the clientele of Bavaria and Baden-Württemberg. When both countries moved to the automatic exchange of information, the competitive advantage shifted from secrecy to substance: portfolio management, currency, legal certainty and the depth of the market. On these dimensions Zurich has advantages of scale that Austrian regional banks could not match.

The withholding tax agreement of 2012 and its end

The relationship between Austria and Switzerland in tax matters reached its most unusual form in the agreement on cooperation in the areas of taxation and financial markets, signed on 13 April 2012 and in force from 1 January 2013.⁶ It belonged to the family of so-called Abgeltungssteuerabkommen that Switzerland negotiated after 2010 as an alternative to the automatic exchange of information. Chapter K.I has described the fate of the parallel agreement with Germany, which the German Bundesrat rejected in December 2012. The agreement with the United Kingdom and the agreement with Austria were the only two of this type that entered into force.

The Austrian agreement contained two elements. For the past, Austrian residents with accounts or deposits at Swiss paying agents could regularise undeclared assets either by authorising the bank to disclose the account to the Austrian tax authorities or by paying a one-off flat-rate tax, calculated according to a formula that produced a rate of between 15 and 38 percent of the relevant capital. For the future, Swiss paying agents deducted a final withholding tax of 25 percent on investment income and capital gains of Austrian clients who chose to remain anonymous, and remitted it to Austria through the Swiss Federal Tax Administration. The client again had the choice of disclosure in place of the withholding tax.⁷ The agreement thus offered, with a lower rate structure than the German draft, the anonymous settlement that the German Bundesrat had refused.

In practical terms, the agreement required the Zurich banks to build an elaborate machinery of calculations, client notifications and reporting. Many Austrian clients used the period before the key date of 1 January 2013 to close their Swiss accounts or to move assets elsewhere, a movement that the agreement tried to counter by tying the regularisation to the relationships in existence on certain reference dates. Others chose voluntary disclosure under the Austrian Selbstanzeige procedure, which allowed them to regularise their tax affairs without the flat-rate charge where the actual tax due was lower.

The agreement was conceived as permanent but lived for only four years. When the OECD adopted the Common Reporting Standard in 2014 and Switzerland concluded the agreement on the automatic exchange of information with the European Union in 2015, the premise of anonymous withholding disappeared. The Austrian–Swiss agreement was terminated with effect from 31 December 2016 and replaced by the automatic exchange of financial account information.⁸ Since then, Swiss banks report the account balances and income of Austrian residents annually to the Federal Tax Administration, which transmits them to Vienna. The agreement nevertheless left a lasting legacy. It regularised a significant part of the Austrian assets held in Switzerland and demonstrated that a bilateral settlement of the past was possible between two neighbours of similar legal culture. Its failure in the German case, by contrast, left a long trail of criminal proceedings and purchased data carriers, which Chapter K.I has recounted.

The double taxation agreement of 1974

The permanent framework for the tax relationship is the agreement between Switzerland and Austria for the avoidance of double taxation with respect to taxes on income and on capital, signed on 30 January 1974 and in force since 4 December 1974. It has been amended by protocols of 1994, 2000, 2006, 2009 and 2012, the last two of which introduced and then extended the exchange of information on request in line with the OECD standard. A separate agreement on inheritance taxes was signed on the same day in 1974 and entered into force on 4 February 1975.⁹ Because Austria abolished its inheritance and gift tax with effect from August 2008, the inheritance tax agreement has lost much of its practical relevance, although it continues to matter for the allocation of taxing rights where a Swiss canton levies inheritance tax on estates with an Austrian connection.

For Zurich advisers, the income tax agreement governs a range of recurring questions. Austrian residents who work in Zurich, Austrian companies with Swiss subsidiaries and Swiss residents with Austrian real estate or business interests all depend on its allocation rules. The agreement contains special provisions for cross-border commuters, which reflect the importance of the labour market along the Rhine between Vorarlberg and the cantons of St. Gallen and Graubünden. It also governs the treatment of dividends paid by Swiss companies to Austrian shareholders, a question of practical importance given the Swiss withholding tax of 35 percent and the need to reclaim the portion that exceeds the treaty rate. The comparatively stable text of the agreement, which has remained in force for more than fifty years, is itself a mark of the unexcited normality of the Austrian–Swiss tax relationship when compared with the German one.

Notes

1. § 38 BWG (Bankwesengesetz), as reproduced by JUSLINE Österreich, https://www.jusline.at/gesetz/bwg/paragraf/38. The provision lists the exceptions in Abs. 2, including criminal proceedings, proceedings for intentional fiscal offences, requests of the Financial Market Authority, the customer’s written consent and the automatic exchange of information under the GMSG and the KontRegG. ↩
2. Wikipedia, “Sparbuch” (German edition), https://de.wikipedia.org/wiki/Sparbuch, which states that Austrian credit institutions were permitted to issue anonymous savings books until November 2000 and that the transfer of existing anonymous savings books was prohibited in July 2002. The role of the FATF, which had threatened to suspend Austria’s membership in 2000, is reported in the literature but is not set out on that page. ↩
3. Arbeit&Wirtschaft Blog, “Bankgeheimnis: Sag’ beim Abschied leise Servus”, https://www.awblog.at/Verteilung/bankgeheimnis-sag-beim-abschied-leise-servus-2. The blog summarises the political sequence from Fekter’s statement in 2013 to the tax reform of 2015 and the introduction of the account register. ↩
4. Bundesministerium für Finanzen (BMF), “Kontenregister und Konteneinschau”, https://www.bmf.gv.at/themen/betrugsbekaempfung/kontenregister-konteneinschau.html. The register was extended to safe deposit boxes by an amendment of 2021. ↩
5. See the account of the transition in Arbeit&Wirtschaft Blog, “Bankgeheimnis: Sag’ beim Abschied leise Servus” (note above), and the list of exceptions in § 38 Abs. 2 BWG as reproduced by JUSLINE Österreich, https://www.jusline.at/gesetz/bwg/paragraf/38. ↩
6. Federal Tax Administration (ESTV), “Österreich”, country page on international tax agreements, https://www.estv.admin.ch/estv/de/home/internationales-steuerrecht/international-laender/sif/oesterreich.html. The agreement is published as SR 0.672.916.33. ↩
7. Bundesministerium für Finanzen (BMF), “Steuerabkommen mit der Schweiz und mit Liechtenstein”, https://www.bmf.gv.at/themen/steuern/internationales-steuerrecht/abkommen-aut-ch.html. ↩
8. BMF, “Steuerabkommen mit der Schweiz und mit Liechtenstein” (note above). ↩
9. ESTV, “Österreich” (note above). The income tax agreement is published as SR 0.672.916.31 and the inheritance tax agreement as SR 0.672.916.32. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.