The German parliament has voted down a long-negotiated tax deal aimed at reining in German tax dodgers without upsetting Switzerland's cherished bank secrecy laws.
Swiss bankers, who have put much energy into convincing Berlin to sign the deal, said they were 'disappointed' at the vote in the upper house of the German parliament, the Bundesrat, on Friday, while Bern glumly said it had 'taken note' of the outcome.
The rejected deal, which had been set to take effect on January 1, called for Swiss banks to deduct taxes from German clients and transfer the tax revenues to Berlin, allowing the clients to remain anonymous.
The Swiss parliament and Germany's lower house had already approved the agreement, but members of the opposition in the Bundesrat had long threatened to block it since they consider it too soft on tax-dodgers.
Switzerland's attempts to reach a tax arrangement with Germany and other countries follows mounting objections to Swiss banking secrecy practices that have long made it possible for foreigners to stash undeclared funds in the country's banks.
Switzerland has signed deals with Britain and Austria similar to the one rejected on Friday and is in talks to do the same with Italy and Greece.
However, the agreement with Switzerland's top trading partner, Germany, was to be the first to go into practice and was considered crucial given the close ties between them.
The German government also expressed its disappointment at the rejection of a deal it has said could net the country around 10 billion euros ($A12.5 billion) in additional tax payments.
The Swiss Banking Association insisted the Bundesrat had 'missed an excellent opportunity to adopt a fair solution' for both countries.
According to German media, up to 180 billion euros in German assets are deposited in Switzerland.
If ratified, the tax deal would have entailed taxation rates of between 21 and 41 per cent on such assets.
Swiss banks last year managed a total of 5.27 trillion Swiss francs ($A5.49 trillion), half of which belonged to foreign clients.