BRUSSELS (AFP) - European Union and Swiss leaders adopted a long-awaited deal on offshore tax fraud that will in return see the Alpine state join the bloc's passport-free zone.
The accord to tax secret bank accounts held in Switzerland by EU residents will be initialled by the end of this month and signed in August, Swiss President Joseph Deiss told a news conference.
But it must then be ratified by the Swiss parliament and perhaps pass a referendum, he said, endangering the EU's target of January to implement is new tax rules agreed after nearly a decade of talks.
Deiss, Irish Deputy Prime Minister Mary Harney -- representing the EU's current presidency -- and European Commission president Romano Prodi also reached agreement to allow Switzerland to enter the EU's Schengen zone.
The zone has abolished passport controls among its 15 participating member states. Switzerland is unlikely to join until early 2007, officials said.
Deiss said the package of accords reached with the EU -- after often-testy negotiations -- showed that Switzerland was a trusty partner of the enlarged bloc despite its zealously guarded neutrality.
"We might not be at the very centre of Europe but we're definitely at the heart of Europe," he said. "We're beginning a new era of relations between our two entities."
Prodi paid tribute to Switzerland as "our closest neighbour -- geographically, culturally and politically".
"We have reached an agreement that is good for Switzerland and good for our common goal of fighting against tax evasion and related crimes," he said.
The EU wants to clamp down on savings held by its residents in countries and territories beyond the reach of its tax authorities. It must reach a deal by June to allow the accord to take effect in January 2005.
But first it must reach equivalent deals with third countries, not least with Switzerland, the world capital of secret banking.
The EU has reached a compromise that will enable Austria, Belgium and Luxembourg, which are keen to protect their own banking industries, to continue confidential banking in return for levying a tax on the secret accounts.
Switzerland had agreed to do the same, but then linked agreement to its own demands for entry to the Schengen area.
Switzerland wanted an exemption from judicial cooperation in financial crimes that may in future apply to the Schengen group of nations. Unlike the EU, the country does not recognise tax evasion as a crime.
But Luxembourg was worried that its bankers might lose out if it was forced to accept such cooperation while Switzerland stayed out.
The EU has agreed that if in future, Schengen is extended to cooperation on direct taxation issues, "appropriate arrangements would be put in place for the preservation of that necessary balance", an Irish diplomat said.
In return, Switzerland has agreed to the rest of the terms of the Schengen zone.
That includes allowing in more workers from the EU's 10 new member states and to pay 200 million Swiss francs (130 million euros, 153 million dollars) annually into EU economic and social "cohesion funds".
However, Switzerland is not expected to join the Schengen area until early 2007, along with the eight countries in eastern Europe and two Mediterranean islands that joined the EU on May 1.
With Switzerland on board, the bloc is confident that it will also win the agreement of four other tax havens in Europe -- Andorra, Liechtenstein, Monaco and San Marino -- by the June deadline.
Source: Yahoo
