Switzerland and Germany have arrived at a significant understanding designed to clamp down on tax evasion by German residents with secret Swiss bank accounts. The deal requires Swiss banks to make an advance payment of 2 billion Swiss francs to the German tax authorities .

German residents who haven’t previously declared existing assets in Switzerland will be given a one-off chance to make a tax payment anonymously at a rate varying between 19 and 34 percent of those assets; or, alternatively, to declare them to German authorities. But the latter would mean risking legal action. The quantum of tax would be decided on the basis of how much money was salted away to Switzerland for how long.

In the future, a flat withholding tax — fixed at 26.375 percent — will be levied on German residents’ capital gains on assets in Switzerland, with Swiss authorities collecting the tax and handing the proceeds anonymously to Germany. The agreement also allows Swiss banks to keep the names of their German clients secret.

The deal would be formally signed in next few weeks and it would take effect in January 2013.