Politicians in Germany's upper house of parliament have rejected a proposed bilateral tax deal between Germany and Switzerland. The opposition Social Democrats and Greens were expected to shoot the bill down.
The bilateral deal with Switzerland had won ministerial approval and cleared the lower house of parliament - but it fell down in the upper house, the Bundesrat. The upper house in several key German states, including the most populous, North Rhine-Westphalia, is controlled by opposition parties.
Switzerland and Germany had approved a deal with which Berlin was aiming to recover a portion of the money deposited in the neighboring tax haven in recent years. Under the terms, assets deposited over the past 10 years would have been subject to tax levels of between 21 and 41 percent. In exchange, those who paid would not have their identities revealed to the relevant German authorities. Future earnings deposited in Switzerland would have been subject to similar rates for capital holdings in Germany, roughly 26 percent.
Switzerland said immediately after the vote that it was still prepared to move ahead if a domestic deal could be done.
"Switzerland is prepared, as before, to lead the ratification process to a successful conclusion," Finance Minister Eveline Widmer-Schlumpf said on Friday. The rules were due to come into force on January 1, 2013.
The Social Democrats (SDP) and Greens had opposed the deal for months, with SDP leader Sigmar Gabriel saying earlier in the year that it "legalizes tax evasion and grants tax dodgers so much time to send their money elsewhere, that it is ultimately ineffective."
The two opposition groups have also decided at the regional level to purchase black-market data on tax evaders using Swiss banks, moves that have come under fire from Switzerland and from Chancellor Merkel's government.
Prior to the Bundesrat vote on Friday, which was expected to scupper the legislation, Hermann Gröhe of Merkel's Christian Democrats said that the opposition was using a policy of "total refusal" on the tax evasion issue, warning against a "months-long campaign" - an apparent allusion to next year's federal elections.
Gröhe also said that shooting down the deal would cost German states billions, "which they might have used to set up more pre-kindergarten places." He was referring to another internal area of policy discussion where the government and the main opposition parties are at loggerheads in parliament.