The German government's deal to stem tax evasion via Swiss bank accounts risks being defeated in the opposition-controlled upper house of parliament after Switzerland issued arrest warrants for three German tax inspectors.
Berne's weekend move to issue warrants for the three Germans on suspicion of industrial espionage for buying CDs containing bank details of German tax evaders (see background) caused outrage among some German officials and risks derailing a deal with Switzerland to fight tax-evasion.
Under the deal, Switzerland would impose taxes on Germans' accounts and levy a punitive charge on undeclared money, and then pass the proceeds to Germany.
But it would not have to reveal the identities of its wealthy banking customers, who are a mainstay of its offshore financial services industry.
Berlin is hoping the opposition will look beyond the outcry and sign off on the deal as it would bring the federal states much-needed tax income on an estimated 150 billion Swiss francs (€124 billion) squirrelled away by Germans in Swiss accounts.
The German government is soon due to present the deal to parliament's lower house, the Bundestag, but also needs the agreement of the upper house, or Bundesrat, where Chancellor Angela Merkel's centre-right coalition doesn't have a majority.
But an outcry over the warrants has emboldened the deal's domestic critics who think it too soft on Switzerland and opposition-led states have said the tax agreement is full of loopholes.
German Finance Minister Wolfgang Schäuble talked up the deal in a German TV interview on Monday.
"With this agreement we've come up with a good way to take care of a decades-long grievance," he said. "There won't be any problems in the future once this agreement takes effect…Switzerland won't be a cover for tax evasion anymore."
If it was to be rejected, the deal may collapse and Germany would miss out on that money.
Germany's finance ministry spokesman Martin Kotthaus insisted on Monday that the agreement was the best way to avoid spats like the present one.
"With the tax deal, all problems would be solved at once," Kotthaus told journalists. "Purchasing tax CDs would no longer be necessary."
If the deal goes through, the warrants for the tax inspectors would become obsolete, he said, adding that the deal will also prevent one country's prosecutors from pursuing tax offences in the other country.
Germany is hoping the deal will take effect at the start of 2013.