The upper house of Germany’s parliament has rejected a landmark tax agreement with Switzerland, prolonging the stalemate between the two countries over how to deal with the estimated €200 billion of undeclared German assets hidden in Swiss bank accounts.

Under the proposed law, Germans would have been able to legitimise their holdings and retain their anonymity in exchange for a one-off penalty charge and submitting to a future withholding tax.

However, despite a last-ditch effort to save it, the deal was rejected in the Bundesrat, by states controlled by opposition Social Democrats and the Greens, who are opposed to the prospect of tax evaders being allowed to retain their anonymity.

Swiss president Eveline Widmer-Schlumpf, said Switzerland was still “prepared to bring the ratification process with Germany to a successful conclusion”.

The German cabinet will decide next week how to proceed. – Copyright The Financial Times Limited 2012