German tax flight, 1970s to 2000s

Motives and mechanisms

The flight of German money to Switzerland after 1950 had different motives from the flight of the interwar period. The Federal Republic was a stable democracy with a hard currency and, from 1958, free movement of capital. What drove German savers to Zurich was taxation. Germany levied an income tax whose top marginal rate exceeded 50 per cent for much of the post-war period, a net wealth tax (Vermögensteuer) on private assets and an inheritance tax with high rates in the more distant degrees of kinship. Interest and dividends received through Swiss accounts were subject to the Swiss withholding tax of 35 per cent, which a German resident could reclaim in part under the double taxation agreement if he declared the income. Many did not. For a German taxpayer in a high bracket, the choice between a declared account in Germany and an undeclared account in Zurich was a simple calculation, provided that the undeclared account remained undiscovered.

The Swiss legal order supported that calculation in three ways. Banking secrecy under Article 47 of the Banking Act protected the client’s identity against private persons and foreign authorities. The Swiss distinction between tax evasion (Steuerhinterziehung), an administrative offence, and tax fraud (Steuerbetrug), a criminal offence involving the use of forged or false documents, meant that Switzerland granted neither mutual legal assistance nor administrative assistance for the mere failure to declare income, which was the typical case of a German client. The territorial principle of Swiss criminal law, finally, protected Swiss bankers against prosecution in Germany as long as they did not act on German soil. Chapter G.III describes the business model that grew out of this framework: client advisers who travelled to Germany to meet their clients, numbered accounts, hold-mail arrangements and, from the 2000s, increasingly complex structures involving foundations, trusts and insurance wrappers.

Waves of flight

The flows were not constant. They followed the rhythm of German tax legislation. The most important wave was triggered by the introduction of a withholding tax on interest in Germany. In its judgment of 27 June 1991 the Federal Constitutional Court held that the taxation of interest income violated the principle of equal treatment, because it depended in practice on the honesty of the taxpayer, and ordered the legislature to ensure effective enforcement.¹ The legislature responded with the interest withholding tax (Zinsabschlag) of 30 per cent, which applied from 1 January 1993. In the months before and after its introduction, German savers moved very large sums to Luxembourg and Switzerland, often with the active assistance of German banks, which transferred client funds to their own subsidiaries in those countries. The German authorities responded from 1994 onwards with searches at the banks themselves. At Dresdner Bank the Düsseldorf public prosecutor found accounts under code names through which client funds had allegedly been transferred to Luxembourg past the tax offices. The searches led to criminal proceedings against clients and bank employees.²

A second driver was uncertainty about the net wealth tax and the inheritance tax. The Federal Constitutional Court declared the existing valuation rules for the wealth tax unconstitutional in 1995. The tax has not been levied since 1997. Its possible reintroduction has been debated ever since, particularly in election campaigns. The inheritance and gift tax was reformed several times after decisions of the same court. Each reform discussion produced a new round of estate planning, part of which involved Swiss accounts, Liechtenstein foundations and trusts managed from Zurich.

The German legislature tried twice to bring the money home without coercion. The first attempt was a tax amnesty. The Act to Promote Tax Honesty (Gesetz zur Förderung der Steuerehrlichkeit) of 23 December 2003 offered German taxpayers the possibility of declaring undeclared income from the years 1993 to 2002 by a special declaration and paying a flat rate of 25 per cent on a fraction of the undeclared income, or 35 per cent after the end of 2004, in exchange for immunity from prosecution. The amnesty ran until 31 March 2005.³ Its yield was far below the government’s expectations, since the government had hoped for revenue of about five billion euros and received a fraction of that amount.⁴ The explanation was simple. As long as Swiss banking secrecy held, the risk of discovery was so small that a rational taxpayer had no reason to pay even a reduced tax.

The second attempt was structural. The Business Tax Reform Act 2008 introduced, with effect from 1 January 2009, a final flat tax (Abgeltungsteuer) of 25 per cent, plus the solidarity surcharge and church tax where applicable, on interest, dividends and capital gains of private investors. Its political logic was explicitly directed at capital flight. The then finance minister, Peer Steinbrück, defended the reform with the remark that it was better to receive 25 per cent of something than 42 per cent of nothing, a sentence that became one of the most quoted in German tax policy.⁵ The flat tax removed part of the incentive to hold undeclared money abroad, since a declared German account was now taxed at a moderate rate. It did nothing, however, for the taxpayer who already held undeclared capital in Zurich, since declaring the account would have exposed the undeclared income of previous years.

The European Union savings tax

The European Union added a further layer in 2005. Under the agreement on the taxation of savings income concluded with the European Community on 26 October 2004, which entered into force on 1 July 2005, Swiss paying agents levied a withholding tax on interest paid to individuals resident in the Union, rising from 15 to 35 per cent, and transferred three quarters of the proceeds to the states of residence. Clients could avoid the tax by authorising the disclosure of their interest to their home authority.⁶ For German clients the savings tax had limited effect. It applied only to interest, not to dividends or capital gains, and it could be avoided by holding assets through a foundation or a company, or by switching to products outside its scope. It nevertheless marked the first time that Switzerland accepted a form of cooperation that went beyond the exchange of information under the double taxation agreement. It also served as the model for the withholding tax agreement with Germany which Switzerland offered six years later.

Notes

1. BVerfG, judgment of 27 June 1991, 2 BvR 1493/89, BVerfGE 84, 239 (Zinsurteil), text at https://www.servat.unibe.ch/dfr/bv084239.html. Under the headnotes, the principle of equal treatment requires equal burdens in law and in fact. Where assessment depends on the taxpayer's declarations, the declaration principle must be supplemented by verification. ↩
2. Der Tagesspiegel, “Joe Ackermann ist nicht der Erste”, https://www.tagesspiegel.de/wirtschaft/joe-ackermann-ist-nicht-der-erste-1047298.html (“Bereits 1994 war die Staatsanwaltschaft Düsseldorf bei der Dresdner Bank auf Konten mit Tarnnamen gestoßen, über die Gelder von Kunden an den Finanzämtern vorbei nach Luxemburg transferiert worden sein sollen”); Deutsches Ärzteblatt 1996, issue 8, “Börsebius: Dicke Fische und dicke Hunde”, https://www.aerzteblatt.de/archiv/titel/dae/1996/8/boersebius-dicke-fische-und-dicke-hunde-16b03e87-540c-47c9-ac26-d36bfe78255d, on the first judgment from the complex “Durchsuchungen bei der Dresdner Bank”. ↩
3. Gesetz über die strafbefreiende Erklärung (Strafbefreiungserklärungsgesetz – StraBEG) of 23 December 2003, BGBl. I p. 2928, § 1 paras. 1 and 2 (periods after 31 December 1992 and before 1 January 2003, 25 per cent until 31 December 2004, 35 per cent for declarations from 1 January to 31 March 2005, 60 per cent of the undeclared receipts for income and corporation tax), https://bundesrecht.juris.de/strabeg/StraBEG.pdf. ↩
4. The government bill estimated additional revenue of 5,000 million euros: Bundestag, Drucksache 15/1521 of 8 September 2003, financial table, https://dserver.bundestag.de/btd/15/015/1501521.pdf. According to contemporary reports, the amnesty yielded about 1.4 billion euros. ↩
5. NWB Experten-Blog, “Abgeltungsteuer – Quo vadis?”, https://www.nwb-experten-blog.de/abgeltungsteuer-quo-vadis/, which reports Steinbrück’s justification that “25 Prozent von X besser sind als 42 Prozent von Nix”. The wording varies slightly between reports. ↩
6. Federal Department of Foreign Affairs, Europe Division, “Automatischer Informationsaustausch in Steuersachen”, https://www.europa.eda.admin.ch/de/automatischer-informationsaustausch-in-steuersachen, which records the signature of the savings tax agreement on 26 October 2004, its entry into force on 1 July 2005 and its replacement by the agreement on the automatic exchange of information. The rates and the division of the revenue are described in Chapter G.III. ↩

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.