BERLIN, Dec 14: Germany will unveil plans on Monday to introduce a flat rate tax on bank savings and steps to encourage residents to bring money back from tax havens such as Switzerland, a government source said.

The idea, including an amnesty from prosecution for tax evasion for residents repatriating savings, would mark an abrupt shift in policy just a week after the European Union failed to agree a common approach to the taxation of savings.

The key points appear to be settled so that they can be presented on Monday, the source said on Saturday.

Earlier a finance ministry spokeswoman confirmed that the government was considering such plans.

According to the source, Germany plans to introduce a 25 per cent flat rate withholding tax on savings income. Germany now taxes income from savings above a certain threshold at the level of personal income tax, which can be as high as 48.5 per cent.

The proposals will also include an offer of immunity from prosecution for people bringing back funds parked illegally offshore, the source said.

Such people, who are currently avoiding tax on their savings, could bring their money back by a certain date and pay 25 per cent to the government. If they repatriated the money later, this rate would rise to a punitive 35 per cent.

The net effect would likely be a fall in tax revenues in the short-term, but a rise longer term, assuming German residents did in fact repatriate foreign savings.

The plans will not however replace existing government proposals to force banks to report all income earned on savings to tax authorities.

The proposal has been criticised as bureaucratic by both the banking industry and Germany’s Bundesbank, but the source said the measure was required to determine savers’ tax-free allowances. The tax-free threshold is currently set at 1,601 euros per person per year.

Finance Minister Hans Eichel has previously rejected the idea of a tax amnesty as being unfair to honest taxpayers.

However, a withholding tax and repatriated money could help settle a dispute within Schroeder’s Social Democratic Party over wealth tax.

Sigmar Gabriel, the premier of Lower Saxony, says the government must reintroduce wealth tax to help cash-starved federal states, but Schroeder is firmly against the idea.

Withholding tax, some of which would go to the states, could be a solution.

Moreover, opposition conservatives have said they would support the plan, which would likely need approval of the Bundestag upper house where they have a majority.

Schroeder, Eichel and Gabriel are due to meet on Monday.

Germany’s hope, that Europe including Switzerland would agree a common method of taxing savings, faded last week after opposition from financial strongholds Luxembourg and Austria.

However, Luxembourg Prime Minister Jean-Claude Juncker, a strong opponent of planned EU savings tax laws, is optimistic about the chances of a deal and does not rule out an accord in January, his spokesman said on Saturday.

The planned bill, which requires unanimous support from EU states, is meant to help EU governments boost their revenues by sharing information on taxable income from cross-border savings.

Luxembourg, whose banking industry accounts for nearly 40 per cent of gross domestic product, has said it would only back the deal if Switzerland and five other non-EU finance centres also eased their banking secrecy laws.

Germany’s proposed withholding tax would not affect government plans to introduce a capital gains tax of 15 per cent for stock market profits.—Reuters